16 Oct 5 Common Roadblocks to Buying an Investment Property
Property now accounts for over 50% of household wealth and has a worth of over $7.6 trillion. With so much media coverage and speculation, and now over 10 million dwellings to choose from around the country, it’s no wonder buying an investment property can be a daunting endeavour. Here are some of the main roadblocks Sound Property encounter when helping clients invest in the property market.
1. Uncertainty in the media
With housing so engrained in the fabric of our society, the property industry often makes front page news and the topic of many conversations. Unfortunately, sensational headlines always sell papers. This can lead the media to twist, distort and be selective in the data and stories they produce. For example, the media often refer to the ‘Australian Property Market’ as one market, when in fact there are thousands of markets around the country doing different things at different times. The media can also comment on trends using small samples or windows of time, such as weekly changes in dwelling values and clearance rates.
No one should be buying and selling property in these short time periods, as transaction costs, such as stamp duty and agents fees, are too expensive. Therefore, it is unfair to judge the potential of a market in the same period. Property is a long-term investment and must be viewed and assessed over 5-10 years at a minimum.
2. Income and expenses of a property investment
Some people may think it is beyond their means to own and operate an investment property. However, if you are earning a reasonable income in today’s low-interest rate environment, buying a property with moderate expenses (body corporate, management fees etc) may result in a positive cashflow. Unfortunately, most new to property investing are unaware of all expenses and how tenants and the taxman can cover these costs. Our powerful and easy to use cashflow calculator – combined with professional tax advice – can help to clarify the income and expenses relationship and show how an investment property can be funded by means other than a salary.
3. Performance and risk in the property market
Not all property is created equally. There are basic fundamentals you can look for to ensure stable growth and consistent tenancy. At Sound Property, we use our 15 Key Investment Drivers as the starting framework to analyse a property market and investment. We recommend sticking to capital cities or economically diverse areas and stay away from large developments and oversupplied areas. Avoid mining towns and ‘cheap’ areas and have someone in your extended team that understands the various national property markets, including supply and demand, vacancy rates, economic activity and demographics. These professional insights will reduce risk and provide the peace of mind that the investment will be a success.
4. Buying in a different Suburb or State
It may be more comfortable to purchase an investment in your own street or suburb, so you can drive past it every day. However, this might not result in the best performance of the investment over time if the area does not exhibit the key investment drivers above. Where you want to live is not necessarily where you want to be investing. Understanding the unfamiliar market is the first step to overcome this roadblock.
Property investing should be viewed as a commercial transaction and as such, get the best professionals to look after it. The benefits of hiring a professional will most certainly outweigh the costs – especially when investing far from home. Insurance policies, such as landlord’s insurance, protects against any tenant related issues, and building or strata insurance will cover the building structure.
5. Not enough time to find the right property
Property Investment can be a much more complicated and time-consuming process than buying most others asset classes such as shares. Having a strategy and a plan will ensure you focus on the right property and market for your requirements, ultimately saving you time. If you don’t fully understand the purchase process, engage other professionals such as a solicitor, buyer’s agent and accountant. An experienced professional can share their knowledge to help you save time and reduce risk.
Purchasing an investment property can be a daunting process and often takes the first-time investor outside their comfort zone. This is also one of the reasons that only a small percentage of the population owns property. Sound Property Group is a property investment and education company that sources strategic real estate investments tailored to client’s individual needs. Our innovative systems and support ensure clients act, and secure property that provides for their future.
Let us do the research for your suburb of interest! We will provide you with Vacancy Rates as well as another 14 Key Investment Drivers for growth and rental yield.
Request a Suburb Profile Report now.
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. Past performance is not a reliable indicator of future performance.