After more than 30 years in the business, we’ve heard it all, so we’ve put together the key FAQs for property investors. These questions are a good place to start for novice investors wanting to build their portfolio.
Why invest in property above other investment options, like shares?
There are so many benefits of investing in property, here are just a few:
- By adding value to your property, through buying well or through renovations, you can accelerate its rate of capital growth, whereas the fate of the value of your shares is completely out of your hands — it depends on how well the company, and the directors who run it, perform.
- As a basic necessity, housing will always be in demand – it will always have value because we simply can’t live without it, which gives property the advantage over shares and other investment options with less risk and greater stability over time.
- No other investment vehicle provides you with the opportunity to leverage 80% of its value in order to acquire more of it as a part of your portfolio.
- Property is a proven stable strong investment. When you can look back over ten, twenty, thirty, even fifty years, you get a picture of exactly how strongly property has increased in value over time.
What are the top features to look for in an investment property?
- Finance potential
- Return on investment (yield)
- The area – can it easily be resold if necessary?
- Property potential, such as the ability to subdivide and/or build
- Demographics and infrastructure (public transport, schools, shops)
- Potential future growth (population movement, planned infrastructure)
Should I buy new or old with a view to renovate?
This will depend on your ability and financial capability. Buying new allows depreciation and buying old offers capital improvement potential. Many people underestimate the cost of renovations and the regulations involved to achieve their goal, so we recommend thorough research before going down this road.
What should I look to avoid when investing in property?
- In terms of the physical property you’re buying, we recommend getting pest and building inspections prior to purchase to discover any structural problems or major issues.
- Many property investors don’t maximise the tax depreciation deductions on their properties. This could result in missing out on hundreds or even thousands of dollars of potential returns.
- Avoid leaving rents to stagnate. Keep up with the fast pace of the rental market to ensure you’re not leaving the rent unchanged for years.
- On the flipside, also avoid being inflexible. You may inadvertently lose money by clinging rigidly to your ideal rental asking price. By dropping the amount by $20 or $30, you may convince a potential renter to sign on the dotted line.
- Don’t assume you know where the value is. Your decisions should be made based on the potential for wealth generation. Look at metrics like historical growth, local employment drivers and unemployment rates, vacancy rates, and yield and population growth.
What research should I conduct to find a suitable investment property?
A good place to start is area sale reports, you can purchase these on sites such as PriceFinder and CoreLogic. Hotspotting.com.au by Terry Ryder is also an excellent resource, but nothing really beats inspecting similar properties in an area you might wish to buy. Buyer agents also offer a paid service that time and/or expertise poor people may utilise and find beneficial.
What fees and charges should I consider?
- Stamp duty
- Body corporate fees
- Property management fees
- Ongoing maintenance charges
- Legal fees
- Immediate repairs on your purchase
- If for any reason you need to sell, you’ll also need to factor in the costs of selling
How long will it take to find a tenant for my property?
This will vary for each property. It’s important to understand that as a landlord, you’re not only looking at rental dollar amount you receive, but the quality of tenant. This is often reflected in the leasing asking price, which will usually dictate how long the property takes to rent out.
Should I manage my own property or hire a property manager?
As a real estate agent that manages property, we always advocate hiring a property manager. Having said that, if you have the time, expertise and have selected your tenants well, then you may be able to manage it yourself. Be mindful of the various state regulations with regards to bonds and the residential tenancies act. Property management is easy when there are no maintenance or tenancy issues!
Will an investment loan be any different to my existing loan?
The simple answer is yes. Many lending institutions have different loan rates and lending criteria for investment properties.
Can I use the equity in my home as a deposit?
It’s certainly possible if you have a ‘redraw facility,’ but ultimately this is a question for your lender, financial advisor or accountant.
How do I change the management of my property over if it is currently being managed by another agent?
It’s usually as simple as signing a new authority with the agency you wish to use and they will advise the previous agent of the new authority and request the transfer of documents, keys, etc.
What’s negative gearing?
Negative gearing is a practice whereby an investor borrows money to acquire an income-producing investment property and expects the gross income generated by the investment, at least in the short term, to be less than the cost of owning and managing the investment, including depreciation and interest charged on the principal borrowings. Negative gearing can work if the money you make from the capital growth is greater than the loss you make in rental shortfall.
What’s positive gearing?
The gross income generated by the investment will be more than the cost of owning and managing the property.
Can I move into my investment property when I retire?
Yes, unless it’s an apartment leaseback to a company such as a hotel or serviced apartments.
Should I look for capital growth or yield in a property?
This depends on why you have purchased the property in the first place. A combination of good yield and capital growth is the ideal, but as a rule you have to favour one or the other.