Investing in property is a fantastic way to make money, just make sure you have everything planned out to the finer details.
While investment activity has slowed down of late, it is still a major force in the Australian property market. Figures from the Australian Prudential Regulatory Authority (APRA) show that at last count, investment lending made up 35 per cent of all housing finance.
But for anyone looking at their first investment property, where do you start? These points can help you understand what to look for in rental real estate .
Use your head, not your heart
First and foremost, you have to remember the key difference between your own home and an investment property – you need investments to be profitable. This can happen through positive cashflow (rental income) or capital gains (value increases).
To find this, you need to research in-depth property reports – both past and future. For example, Sydney has performed well on the whole but BIS Shrapnel says its on the way out. While other areas in Australia are anticipated to see 15 per cent capital growth between 2015 and 2018.
Using real estate professionals and research centres like CoreLogic RP Data can be useful for identifying growth areas for positive cashflow and / or capital gains. You'll also need to consider different types of property – houses tend to be good for value growth, while better rental returns are often found in units and apartments.
Is it time for you to invest in a second property? Plan, plan, plan is the key.
Use your equity
Owning one home makes it easier to buy the second. This is because of two things. Firstly, consistent repayment of a home loan can put your credit history in good stead with lenders. Second of all, you will have generated significant equity in your property.
This is the amount you have paid off your loan as well as any value increases – essentially, the money tied up in your first home. This can be leveraged as a deposit on an investment property, making the process much easier.
Rental income can even cover the home loan repayments – if you structure everything right! The payoff can set you up for a successful financial future, but you have to prepare your budget, get in the right mindset and make a plan with your real estate agent and financial advisors.
Weigh up the risk versus reward of owning a second home and then talk to a financial adviser.
So, grab your pen and make sure you have the following ticked off;
Do you have enough income to cover two mortgages? Will you focus on capital gains or positive cashflow? What kind of property is going to help achieve those goals? Will it create wealth for the long term?
The key to your first time investment is carefully selecting something that doesn't just fit in your budget – it enhances it. The experts at Peter Blackshaw can help you find growth areas, as well as a home that suits your financial goals.