5 Tips for Investing In the Australian Property Market
Navigating the Australian property market can be tricky business and
like any investment there is some risk. Here are 5 tips that will help you be successful.
The Australian property market is booming. And it’s no secret that international investors are cashing in on what they see as cheap and high-yielding properties.
For Australians, the “Great Australian Dream” of owning investment properties is still reachable. As long as you do your homework.
Many people have great intentions for property investment. But only a small percentage actually commit and follow through on their dreams of investing in the Australian property market.
If you’re ready to get started, the below tips will help you understand what to do in order to set yourself up for investment success. Read on to learn how to minimize your risk and succeed as an Australian property investor.
1. Understand Your Finances
The first step is to know exactly where you’re coming from financially.
Property investment is an excellent choice if you’re aiming for long-term wealth. But there are a number of aspects to consider.
First, you need to find out whether you can afford to pay your mortgage payments over the long term. This may involve a conversation with a Broker. Consider your job security, and whether you would be able to afford to pay the mortgage in the event that you had trouble finding tenants. But these concerns can be minimised with a well thought out investment strategy.
Another key consideration is the upkeep. Not only will you need to service the loan, but you’ll have a number of ongoing costs.
Be sure to make allowances for times the property is empty if you’re planning to rent it out.
You’ll also need to be aware of all of the taxes involved in the Australian property market. It’s a good idea to speak with an accountant to avoid any nasty surprises.
Finally, speak with several mortgage brokers or lenders to understand how much you can borrow, the interest rate climate, and your steps for pre-approval.
2. Choose the Right Property
Most of the time, real estate investment is all about capital growth. So picking a property that has a high chance of increasing in value is one of the most important decisions you’ll make.
While the value of companies are transparent when you’re buying shares, real estate can be much more difficult to price. But this means that with some knowledge and patience, you can acquire a property below market value.
The trick is to do some research. Once you understand what properties are selling for in the areas you like, you’ll soon be a pro at working out what different properties are worth.
Speak to as many real estate agents and locals as you can in the area you’re looking at purchasing in. They’ll let you know inside information like whether one side of the street is better than another, or if major construction is planned near your potential property.
As for me, i have acquired the advise of professionals, they know more about the market place and high growth areas- REIA are the people i choose.
3. Choose the Right Mortgage
There are a number of options for financing in the Australian property market. Getting sound advice can make a huge difference when it comes to your financial health.
While interest on investment property loans is often tax deductible, some borrowing costs are not. Correct loan structure is critical, and you’ll need to speak to a financial advisor.
Avoid mixing up your home loan and investment property loan and keep them separate. This will allow you to reduce your accounting costs and maximize taxation benefits.
Whether you choose a variable rate loan or a fixed loan will depend on your individual circumstances. But you’ll need to carefully consider both options. While variable rates have proven to be cheaper over time, a fixed rate loan chosen at the perfect time can pay off.
If possible, ensure that your investment loan is set up as Interest Only (instead of Interest and Principal). This will increase your investment’s tax effectiveness. This is because when you have a Principal and Interest Loan you’ll watch your negative gearing benefit decline as the amount of your loan is being paid down.
4. Reduce Your Risk
The Australian property market has been volatile for some time, with experts
predicting a crash for the last 10-15 years. But in order for this to happen, Australia would either need to see a surge in interest rates or a recession — neither of which look likely.
This does mean that you should do everything you can to reduce the amount of risk you’re taking on with an investment property though. If you have a strong cash flow, you’ll be able to ride out any rate hikes or periods without tenants.
But needing to replace your hot water service or roof within the first few months of owning your investment property can make a huge difference to your profits and cash flow. For this reason, you’ll want to get a building inspector to thoroughly inspect the property before you sign on the dotted line.
Or better still, buy a brand new house and land package. This should give you plenty of years without having to spend lots on repairs. And you will gain a lot more on depreciation. Also, minimise risk and stress buy using Landlord insurance.
5. Prioritize Your Education
It’s better to take a little longer to find the perfect investment property than to jump in with both feet and risk making a mistake. Of course, too much hesitation can also turn into procrastination.
There are some great resources focused on the Australian financial market, so you can educate yourself and improve your chances of success.
If you’re looking for advice, remember to only listen to people who actually have a real estate portfolio. That means someone who has bought and sold at least a handful of properties or someone who has invested in property and rented them for several years.
Everyone else who offers you advice at a backyard BBQ should be screened before you take any of their advice seriously.
You’ll also want to learn how to perform pre-investment analyses on the properties you’re considering. That means creating a list or spreadsheet for each prospective property for comparison. Double check that all information is correct and not “pro-forma” (basically a guess from the property manager or seller).
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