Top 10 Tips for Buying an Investment Property | Part 2



This blog is one of a two-part series sharing our top ten tips to employ when buying an investment property. To take a look at the first in the series click here.

 

6) Calculate the costs

Cash flow is key – so when you’re considering a property for investment purposes it’s important to think about how much it will cost you to own and manage it on a monthly basis. Doing some quick calculations taking into account your ongoing mortgage costs, land tax, having a professional property manager on board and any regular bills and maintenance that needs to be carried out will ensure that you can keep up repayments on your mortgage and gives you an idea of the amount of profit you can expect from the property on a yearly and monthly basis.

 

7) Mortgage, equity and intelligent debts

Don’t forget that banks also assess the property itself when deciding whether to lend – so it needs to be an attractive prospect from their perspective, too. This means that throughout the course of your search you’ll need to identify the types of properties banks love to lend against. Think of this as a good thing – as largely it protects you from potentially risky investments.

 

8) Beware of oversupply

An increasing amount of housing stock is specifically being built for and marketed to investors – predominantly shiny new medium or high-rise apartment blocks in CBD or suburban locations. This presents investors considering those properties with the risk of oversupply – if all properties are sold at once, growth will be slower and competition for tenants will be much higher. Carefully consider whether the property is being marketed to you based on tax benefits or rental guarantees. Tax benefits are useful – but it’s rental income that will pay your bills and provide your profit going forward. Be aware that rental guarantees are often built into the price of the property and may not be reflective of a real market value compared to other properties at the time of purchase.

 

9) Manage risk

Most investment properties should be viewed with long-term objectives in mind. The longer you can afford to commit to a property the better – as this enables you to build up equity which can then be used to grow your portfolio further. Investment in property involves a careful balance between risk and financial stability and security.

 

10) Check age and condition before you buy

Age and condition will be key factors as you search for your investment property. It’s important to take into account property depreciation (more on this here & here), but even with that in mind large renovation tasks such as a new roof or structural work will significantly eat into your profit margins – and could wipe them out altogether. It’s a savvy move to arrange a thorough inspection prior to purchase by a surveyor who can also give you an idea of the deprecation expenses you can expect to yield to offset your tax bill.

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