Property investment is one of the most lucrative assets that should generate capital growth in the long run, if you invest smart. Whether the asset is to set you up for retirement, a secondary source of income, or potentially as your only income, choosing the right property can often be a difficult choice.
The real estate market has changed dramatically in recent months and we are experiencing a downward price cycle. Property selection is now more critical than ever before. Buy the wrong property and you are on a downward slope that could take years to recover from. Buy the correct property and you are in seventh heaven.
Here are a few fundamental acknowledgments to consider before starting your journey.
1. Can I afford it?
There’s no denying that a real estate transaction usually involves a large initial outlay. The best time to buy real estate as an investment is when you can afford it. The last thing you want is for this investment to impact negatively on your lifestyle. You still need to be able to afford a night out at a restaurant and go on an annual holiday for example.
The best place to start is to set a budget and go and see a financial planner. Secondly, make sure you have set a firm price limit and you have a preapproval from your lender. Thirdly, seek out the experience of a valuer and/or professional buyers’ agent. You cannot afford to make a mistake.
2. Building the brick work (where to start)
With a daunting decision ahead of where to purchase, you need to research what type of property you would like to invest in. Is it a smaller house in the inner-city, an older style refurbished apartment, ground floor with a courtyard or top floor front, a villa unit, a town house or is it semidetached? Should I buy in the outer suburbs or in a regional area?
These are very complex decisions and I see many people make poor decisions either because they do not know what they do not know, obtain the wrong advice or they have blind trust in an accountant, financial planner, mortgage broker, developer or friend that may or may not be independent and have very limited property knowledge. The best advice I can give is to seek independent advice before signing the contract from a property professional like a buyer’s agent, but preferably one that also has technical property qualifications and experience like a valuer.
3. Property’s historical performance
To get a good return, you need to be in the game for the long-term and avoid selling three to five years later. In my opinion, real estate is a minimum of a 10-year investment if not more. If you choose to sell within five years, unless you manage to time the upswing well, you will usually come off second best due to the high transactional costs that comes with buying and selling property.
Further, most people do not select property very well. In my 30 years’ experience as a valuer, licenced agent and buyer’s agent, less than 5% of all property is of investment grade. Do not stress, do your homework, investigate the capital growth profile over the last 30 years of the property and take notice of suburb profiles or median house price statistics. Engage a property professional who is independent. Use someone who negotiates for a living. Someone that understands the local values. Someone that turns up to an auction with a clear and concise plan. Someone that will be happy to look you in the eye in 10 years’ time and say now that was a good investment.
4. Using the tax system to your benefit
Whenever, I see a property advertised for sale with tax benefits, rental guarantees, free appliances, developers paying my stamp duty, free rebates, no deposit I usually turn and run the other way. I would never take a client into this situation unless there was a very good reason.
In my experience, the property must perform and stand on its own without all the bells and whistles and tax incentives. If a property cannot stand up without this, I simply do not buy it. The secret to buying good investment grade property is actually quite simple. Buy a very good property in the first place and then hold onto it for a very long time. That is why selection is critical.
If you would like to learn about the best streets and suburbs to buy in, that have proven growth history, please contact me: .
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