1. Choose the right property
Investing in real estate is usually all about capital growth, so choosing a property that is likely to increase in value is the most critical decision you will make. Ensuring that you have a steady rental income stream is also vital because this cash flow will make the holding of the asset more affordable and provide much needed income. There is a different classes of residential property like home units, houses and land that can outperform each other over time. Some areas offer higher rental yields, but it is important that you do your home work as often these properties provide lower capital growth opportunities. These can be extraordinarily high and may mean that a house offers a better investment opportunity.
2. Do your sums.
Investing in property is a proven path to long-term wealth, however you need to hold the property for the long-term if you are to benefit. Be aware of taxes involved in property investing and add these into your calculations. Stamp Duty, Capital Gains Tax, Land Tax, all need to be taken into account. Banks factor in rental costs and potential vacancy periods that you may incur. Make sure also that you factor in insurance costs, especially landlord insurance. This will cover you for malicious damage, loss of rent and other things that may affect your ability to earn income from the property
3. Find a good property manager and allow them to do their job.
They are professionals in the field and should be able to help you get the best possible value from your property. The property manager or agent should be able to give you advice on property law, your rights and responsibilities as a landlord. The manager should also take care of any maintenance issues, although you should approve all incurred costs (other than certain emergency repairs), in advance. The property manager will also help you find a good tenant and make sure they pay their rent on time. Record your dealings with them and get responses in writing if possible.
4. Understand the market where you are buying.
Consider what other properties are available in the area. For example, going to a source such as RP Data can give you information on average rents, property values and suburb reports. It is also a good idea to find out what changes may be happening in the area. For example, a major construction next to your property could make it harder to rent out or a planned bypass may mean traffic will be reduced and may increase the value of the property over time.
5. Pick the right type of mortgage to suit you.
There are many options when it comes to financing your investment property, it can make a big long-term difference to your financial wellbeing. Interest on an investment property loan is generally tax deductible, but some borrowing costs are not immediately deductible and knowing the difference can count. Avoid mixing up your investment property loan with your home loan, they need to be separate so you can maximise your taxation benefits and reduce your accounting costs. Most investment loans should be set up as Interest Only (rather than Principal and Interest) as this increases the tax effectiveness of your investment. Interest Only loans ensure that you maximise your “tax deductible” debt. The best strategy is therefore to accelerate the repayment of your “non-tax deductible” debt, such as the loan on your residence.
6. Use the equity from another property.
Using equity in your home or equity from another property investment, is an effective way to increase the leverage in your investment property. Equity is the amount of money in your home that you actually own. It can be calculated by working out the difference between what your property is worth and what you owe on the mortgage. Using the equity in your existing home can allow you to borrow more money against your investment property, which will increase your tax deductions.
7. Negative gearing.
Negative gearing can offer property investors certain tax benefits if the cost of holding their investment exceeds the income it produces. Australian tax law generally allows you to deduct your interest and maintenance costs on an investment property from your net rental income. If these costs exceed the net rental income received, then the “loss” will be tax deductible and should result in a tax refund. Investors must be warned that they should not just buy an investment property to get a tax deduction. A good accountant should be able to assist you with evaluating this aspect of your investment. If you are buying the property with your partner or another investor, take advice on whose name the property is should be held in and what percentage each investor owns. This wills require a combination of Legal and Taxation advice. These decisions will also affect the results at sale.
8. Check the age and condition of the property and facilities.
It is advisable to engage a professional building inspector before you purchase (and then once a year) to conduct a thorough inspection of the property to find any potential problems. It is also important to use a qualified trades person who is licensed to carry out the work and who has adequate insurance to protect you against poor workmanship. If you are buying a unit, check the body corporate’s reserve fund for future capital works. Make sure there are sufficient funds to take care of any issues identified in the building report. You should also make sure annual levies are appropriate.
9. Make the property attractive to renters.
Go for neutral tones and keep the kitchen and bathroom in good condition. You should remember that how well the property is presented will impact on the quality of the tenant. Another point that is subject to debate is whether you should buy a property that you’d be happy to live in yourself. Differentiating between your own home and your investment to avoid becoming overly involved remember it is the home of your tenant and not your own.
10. Take a long-term view.Remember that property is a long-term
Property is a long-term investment and you should not rely on prices rising in the short term. Therefore, the longer you can afford to commit, the better. Be aware that unlike shares or managed funds, you can’t just sell part of your investment if you need the money. In short, be cautious, but consider that record migration levels and a rental property shortage are crucial factors favoring investing in property rather than shares or managed funds at this time.
Source: Mortgageport Investment Tips
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