If you want to begin making real estate investments or are already a landlord and want to maximize your returns, this guide will share the risks, benefits, and tips to make the most of your real estate investment.
Before making a property investment decision
Property investment can be a proven and low-risk way to build wealth, but it does carry some risk. Before making a property investment purchase, carefully weigh the benefits and risks to determine whether it is a viable investment for you. You can do a self-assessment by consulting professionals and educating yourself to determine how much risk you’re willing to take on, and you can look clearly at the risks, so you know what lies ahead.
Examine the risk
Investment property is generally considered less risky than other options such as stocks, but you must still assess the risk of the investment. You should do a cashflow analysis with an accountant, property advisor, or financial planner’s assistance when determining the risk level. It’s critical to consider all the expenses associated with owning an investment property so you know exactly how much you can afford.
How expert advice can improve your chances of success
Talking to a professional about your real estate investment goals is a good idea. Consult with accountants, property experts, conveyancers, buyer’s agents, local real estate agents, financial planners, and mortgage brokers to determine whether the property will be a good investment.
An accountant can assist you in assessing your cashflow and managing the paperwork associated with the property purchase. In contrast, a mortgage broker can compare different home loans to ensure that you get a competitive deal that meets your borrowing and investment objectives. Before you sign on the dotted line, a solicitor can assist you in interpreting and preparing legal documents.
To get guidance on buying an investment property and the best kinds of properties to fit your financial goals, think about chatting with a buyers agent sydney or property expert.
Immerse yourself as much as possible in information and research. You can use tools like the Australian Bureau of Statistics (ABS), CoreLogic Data, Residex, and many more websites that offer data and insights on the real estate market that can act as the basis of your preliminary search.
Create a property purchase strategy and write down all the important decisions you’ll need to make throughout the process, from determining your investment strategy to obtaining financing, signing paperwork, and screening potential tenants.
What is your property investment strategy?
After consulting with an accountant and a financial planner, you should know how you intend to profit from the investment.
The following are the most common property investment strategies:
Purchase and hold: Buy the property, then wait for its value to rise before selling. Rent income can cover mortgage payments until the property is sold.
Add value by renovating: Purchase the property, renovate it to increase its value, and then resell it for a profit.
Capital appreciation: Some investors attempt to zero in on a property and location that will rapidly increase in value in the current market. These investors may use interest-only investment loans to reduce non-deductible costs and then sell the property after a few years.
Finding the ideal property
The most important step is probably finding the right property. You must find a property that fits your investment strategy, is appealing to renters, and will hold its value over time. You must also ensure that you are paying a fair price for the property and that it is structurally sound.
You must make decisions on the following issues:
Property type: Will you buy a condo, a detached house, or a townhouse?
New or seasoned: Some investors prefer to buy brand new buildings, while others see more value in existing homes:
Suburb: The suburb and location you choose significantly impact your investment. Look at suburb-level data and get out on the streets to see for yourself.
Rental return and capital growth
Regardless of your strategy, you must purchase a property with capital growth potential and one you can rent out. In short, you must run the numbers to determine whether the investment makes financial sense. You must also ensure that the return on your property is comparable to the return on investment in another asset class, such as stocks.
Capital growth is the increase in the value of a property over time and is why most people invest in real estate. The property market works in cycles, with periods of growth, stagnation, and decline, all of which have occurred in the Australian property market. Given this, it is clear that investing in real estate should be done for the long term rather than for a quick return.
How much money can you anticipate making over the long term? This is determined by the size and type of property, the location, and the local growth drivers. A land-locked suburb with no more land and a growing population will have high demand and low supply, putting pressure on property prices.
Examine the average rental price for similar properties in the area and consider whether the rent you receive will be sufficient to cover property maintenance costs while still allowing you to profit.
The yield of a property is an important figure that is calculated by dividing the rent received over a year by the price paid for the property, which is then multiplied by 100 to get a percentage.
Remember that when you invest in real estate, you are leveraging your deposit. You could begin with $50,000, but your 5.2% return is calculated on $500,000, not $50,000, which is likely to be the same amount you would invest in stocks.
Obtaining a mortgage for an investment property
Are you ready to begin and apply for an investment loan?
You must establish the proper borrowing structure at the start of your investment journey. To maximize your tax and financial benefits, get the right loan in the right amount and name.
Make sure that you do the following:
Determine your borrowing capacity: Before comparing different home loans, you must first determine your borrowing capacity.
Compare mortgages: Look for a suitable investment mortgage with a low interest rate. Keep an eye out for exorbitant fees as well.
Get pre-approval for a home loan: Check with a lender to see if they offer pre-approval for a home loan, preferably with a credit. Before you begin looking at different properties and investments, you must first determine your budget.
After you’ve found a property to buy and begun the home loan application process, you must complete the following steps:
Prepare mortgage paperwork: To finalize the mortgage documents, contact your lender.
Hire a quantity surveyor: A quantity surveyor can assist you in maximizing the tax deduction from the property.
Landlord responsibilities: If you want to rent your investment property, learn about your landlord’s rights and obligations and how to advertise appropriately. A conveyancer should also check the property’s boundaries if the investment is larger than an apartment.