Property in Australia is traditionally an excellent investment. It is one of the most stable assets one can put their money into; historically it is one of the most rewarding investments, and it is relatively easy to research and understand so almost anybody can invest.
That being said, before diving head first into an investment property there are many aspects that need to be considered, from location to the market, to weighing up advantages and risks. Here are some helpful things to consider before buying an investment property in Australia.
When it comes to investing in property, location is everything. This may seem obvious for anyone looking to buy property, but is doubly important for investors looking to maximise their long-term capital growth.
Here are some tips for choosing the best possible location for you.
• Choose city properties over country – Country property is often far cheaper, has a higher rental yield and can, over the long term, have attractive price growth. But one can’t forget that those attributes can come at a cost. Property outside of major population centres can be illiquid if you need to sell, with higher selling costs due to the smaller market with less competition between agents.
Finding a good quality long term tenant can also be more difficult due to the smaller rental pool with rental management costs which are higher. And with the population base tied to a far less diversified economic base, if the industry of the region – be it agriculture, mining or educational – hit a bump, prices can underperform sharply and for a prolonged period.
This is why we focus most of our time on major population centres with diversified economic bases, growing population trends, and strong structural demand for housing.
• Know your budget and options – Having a realistic grasp of your budget and subsequent options is the first step to choosing the best location possible. Speak with a mortgage broker and look at your options. Then you can begin researching city suburbs that might want to invest in. Make a shortlist of potential locations and go from there.
* Key tip: Even with the best planning your going to miss something in identifying your costs, so be conservative. Look to have a deposit which will give you flexibility during the settlement process, and if you have a little left over, you can put it in your offset account while looking for the next compelling opportunity.
• Thoroughly research the area before you look at a property – A decision made in haste is regretted at leisure, so spend time identifying your target area. Buy a copy of a property investment magazine and start getting a feel for which geographic areas interest you.
If you can drive there, go and walk the street – or if interstate do a Google street view virtual tour (but beware images are historic and streetscapes can change quickly) – to get a feel for the area.
* Key tip: Look for areas that may be gentrifying, or are on the edge of more expensive areas. Areas that have been more expensive in the past due but are seeing price weakness may be on the shopping list if the reason for the weakness is only short term in nature.
• Identify social, cultural and attractions – When doing your research, identifying social, cultural and lifestyle attractions in a suburb will help you differentiate between locations. Buyers favour these amenities and their long-term capital worth should never be underestimated.
• Take note of each and every positive element of a location – This includes proximity to shops, cafes, parks, employment hubs, transport etc
• Follow infrastructure – Keep track of developing infrastructure and how this might boost the value of an area in the future.
• Talk to local councils – Chat with local councils in potential locations and find out what is being planned in the area. Anything from infrastructure to new schools, shops and road upgrades might add value to a location in the long term.
• Take a look at the Census data for different locations – Census data can give you some great insight into how a suburbs are changing and growing. Take note of the type of people living there, their incomes, their age and professions and how this might influence your choice.
• Explore neighbouring suburbs – Once you have identified where you might want to buy a property, take a look at the neighbouring suburbs. If somewhere is buzzing, then neighbouring suburbs are usually the next in line for growth.
To maximise the potential for long-term capital growth, your investment strategy should be based around building up a robust portfolio featuring diverse locations and even different property types.
This strategy requires careful planning and clever management of investment properties. Some key tips would be to:
• Plan ahead. Every investor is different – be sure that your portfolio goals suit your desired future outcomes.
• Do your research and select the best location possible.
• Aim for a diverse portfolio focused on long-term growth. Apartments and houses can have very different investment characteristics.
• Consider different capital cities across Australia, they all have their own property cycles and timing your entry into a specific market may dramatically affect your growth profile.
• Your first property counts! Make sure you start out strong, you need not only strong capital growth but also strong cash flow to make sure that you are in a position get a positive answer from your preferred finance provider when your ready for next step on the property ladder.
* Key tip: It’s all about getting to positive cash flow as soon as possible, so look for great yield and high depreciation allowances to keep the bank happy!
• Study hard and learn as much as you can about property investment along the way. There are a thousand books out there and many are very good, the great thing about property is that there is not one golden rule. Twenty people can have twenty different strategies and they can all be successful, find the one that works for you.
• Build a solid team around your portfolio. This includes an experienced property strategist, accountant or financial planner, mortgage broker, property manager and lawyer.
The internet provides a wealth of information for potential property investors. Looking at historical data and current sales results can help give you a good grasp of trends and patterns in the market.
These are few websites which can be very helpful:
• Residex – Residex is an award-winning property data resource for banking and finance industries, property professionals, investors and homeowners providing market and suburb reports, predictions, rent reports and much more.
• PropertyDATA.com.au – PropertyDATA provides analytical data collected by the real estate institutes and is widely trusted by banks, real estate agents, valuers and investors alike; an excellent research tool.
• JLL – JLL provides property research and market reports for residential, industrial and commercial properties.
• Real estate institutes – Each state in Australia has its own real estate institute which provides market commentary as well as median sale prices and other market data. Search ‘real estate institute’ and your state and you will find the information you need. This is particularly helpful when looking to diversify your investment portfolio with properties in different cities.
Having a keen insight into the valuable aspects of a property is extremely important. Knowing your target market will dictate what to look for – whether it’s families, baby boomers or young professionals.
Some of the most valuable supplementary components of a property include:
• Integrated lifestyle facilities, i.e; gym, swimming pool, tennis courts
• Proximity to transport, entertainment and other lifestyle attractions
• Proximity to schools and universities, health facilities and business districts
• Access to the NBN (National Broadband Network)
Investing in property has its advantages and its risk and it’s important to weigh up each before making any purchase decisions.
• Property is a relatively stable market
• Property generates fixed returns to investors through renting to tenants, especially commercial tenants
• Property can offer lucrative tax benefits
• Property investment has been one of the most widely used and successful investment strategies through time
• Property is diverse and multifaceted
Risks and Disadvantages
• The initial and ongoing costs for purchasing property is usually high
• Property is harder and can take longer to sell than other financial assets – i.e. it is not very ‘liquid’ especially in regional areas or during times of economic uncertainty such as volatile interest rate markets.
• There can be costly ongoing maintenance issues with a property
• Rental circumstances can change, meaning you may still be paying to cover expenses while receiving no income from the property
• Property value can decrease too, especially in areas with a single industry demand base such as mining
• Bad tenants can cause issues
• Given the relative cost of a property it can be a very large weighting in your asset base.
It all seems a little daunting, doesn’t it? That’s why having a great team around you helping to minimise the risks, but also positioning you for the rewards, makes all the difference! So speak to us today about how we can help you follow your dreams.