25 September 2017

6 Questions to Answer Before Investing in Property

We are often asked if it is a good time to invest in residential property. The real question you need to ask yourself is, “is this the right time to invest in property for me?” 

There are many different styles of property (houses, units, apartments, and so on) in many different locations (CBD, inner suburbs, outer areas, rural, etc). The choice of property for investment purposes is enormous, so here are six useful guidelines to help you make an informed decision.

1. Do you numbers stack up?

Work out how much you can afford to borrow and what surplus income you have to support the loan plus meet the expenses of holding the property (like rates, body corporate fees, insurance and maintenance). There will be a tax break if you negatively gear but it may be wiser to ignore that and focus on the quality of the investment initially. Sound Property has a very useful Cashflow Calculator to assist you with this estimate.

2. What assumptions have you made?

What rental will it attract? What capital gain is reasonable? Which direction are interest rates likely to move during the period you plan to keep the property? These can all affect your sums and your attitude to the investment. We always prefer to take a conservative approach when estimating rental yield, interest rates and other purchasing costs.

3. How much do you know about the property market?

Evaluate the local market. Do your own “due diligence” by checking real estate websites to see what rent similar properties in the area are attracting, tracking property sales patterns and the capital appreciation. The amount of data can be overwhelming, but will empower you to move forward. To help you out with your research, get a complimentary Suburb Profile Report from us, for any suburb in Australia.

4. Do you have the right team?

Have a team of trustworthy experts that will assist you along the way. At Sound Property we work with a range of reliable service providers, from strata managers to build inspectors, who all understand our standards of service. You may choose to use their own provider. Either way, the key factor here is to have a great work relationship with whoever is assisting you with the process. Their tips and experience are invaluable.

5. Will you be in it for the long term when investing in property?

You will hear and read about people who made a short-term killing on property investing. You may be one of the lucky ones, but most people hold a property for five to ten years to realise significant value. Also, you can understand much better how a specific market is behaving if you look at the previous 10 years, opposite to only the last 12 months.

capital growth sydney brisbane melbourne

Source: CoreLogic

6. What is the best strategy to borrow?

There is a wide range of loan facilities available in the market. Choosing between an interest-only loan and a principal-and-interest (P&I) loan is a key question as an investor. An interest-only loan means you minimise your costs and maximise the interest expense for tax deduction purposes. The return on your investment will come from the potential capital gain. But if you keep the property long term, you will have to change to a P&I loan at some stage, so be prepared for this eventuality. P&I loans are more expensive but like forced saving, if all goes to plan, you gradually increase your equity in the property.

Contact us on 1300 655 899 or email us to discuss a property strategy that suit your needs and goals. You can also read our Case Studies to understand the different options of investment properties.

This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest.