The Benefits of Investing
Purchasing property to rent out as a passive source of income is a highly attractive investment option for many Australians. While there are advantages and disadvantages to property investment, let’s talk about the benefits of investing in bricks and mortar.
- Regular cash flow—Rental income can provide additional cash flow(money in your pockets).
- Pay down your mortgage—At the very least, if the rent you charge just covers your mortgage, your tenants are paying down on the amount you owe.
- Capital growth potential—If the value of your investment property increases over time, you can sell your property for a capital gain. So, not only can you achieve regular cash flow each month, but once you sell, you can potentially earn a hefty return on investment.
- Security—Property can be more secure and less volatile than other investments.
- Physical asset—You’re investing in a physical asset you can see and touch, which many people are more comfortable with than intangible assets.
- Tax benefits—You can claim deductions on your tax return, such as: rates and taxes, interest paid on the loan, repairs and maintenance, etc.
- Negative gearing—If the cost of holding your property exceeds the income you earn, you can claim tax deductions as a result of negative gearing.
These are some of the benefits of investing in property. If you’re a first-time investor, here are some steps you can take to start your investing journey.
5 Steps to Start Your Investing Journey
- Set your goals
Your first step should be determining what your goals are. Do you want to receive passive income each month to supplement your regular income? Do you want to use negative gearing as a tax benefit to lower your taxes? Are you in it for the long haul and looking to make a large capital gain and return on investment?
List your priorities, so you have a basis to start from and can begin narrowing down what will help you achieve those goals.
- Do your sums
Figure out how much you can afford to spend. Determine what your repayments will be and what the average rent is in the areas you’re interested in. Outline all of your expenses, including an allocation for maintenance and vacancy issues. Investing in property is a medium to long-term investment strategy, so you need to ensure you have the capacity to maintain the property over the long run.
- Understand the Market Where You’re Buying
Research the market dynamics of each place you’re looking to invest. Speak to a qualified real estate agent, speak to the locals, and gather as much information as possible. Look into what changes are coming to each particular neighbourhood. For example, construction or new development right next to your property could be a deterrent to tenants. However, if a new shopping centre is coming down the road, it could also be an attraction.
- Look at Your Existing Equity
If you have existing equity available in your current home, you may be able to use this to help pay for the investment.
- Select the Right Investment Loan
If you determine you’ll be using a mix of cash or existing equity and an investment loan, selecting the right loan is crucial. Determine whether you want the certainty that a fixed rate mortgage affords or if having the flexibility of a variable rate is the right choice for you.
Top Tips for Buying an Investment Property
Now that you know the benefits of investing in property and the initial steps you’ll need to take to begin, here are some of our top tips for investing.
- Choose the right property at the right price—Choose a property that is likely to increase in value. Look at top yielding suburbs as well as up-and-coming suburbs with growth potential. If you can acquire an asset below its market value and hold it mid-to-long-term, you may see a significant capital gain upon selling.
- Find a good property manager—A property manager can efficiently manage your property for you and advise you on property law as well as your responsibilities as a landlord. They’ll also handle maintenance and billing.
- Be very mindful of the condition and age of the property—Using the services of a building inspector to check out a property before you buy it can be highly beneficial. With an investment property, something like needing to change the roof or replace a water heater can make a huge difference in your profits.
- Create an attractive property for renters—Make sure the kitchen and the bathroom(s) is in good condition. Stick with neutral tones that appeal to buyers. This will be one factor that helps secure a tenant as soon as possible.
If you have questions about buying or selling property or would like to speak to a qualified real estate professional, contact us.
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