Are you in the market for an investment property? If so, take a minute or two to review the following “do’s and don’ts”. It is better to be in the know when growing you property portfolio!
Avoid having to make a “subject to finance” offer – you will have a much better negotiating position if the contract of sale is not subject to obtaining approval on a mortgage – pre-approve your loan.
The type of property that you will invest in will depend on your strategy – high rental return or capital growth and sustainability. High rental return will be associated with apartments close to universities, cafes, transport and hospitals. Capital growth and sustainability will be associated with areas such as inner-city period homes.
Location is critical – close to schools, shops, transport and recreational facilities is your target.
The property should be clean and neat with usable kitchen, bathroom and laundry facilities, or alternatively, you should be planning to renovate as soon as possible. Remember to consider that over-capitalisation should be avoided – do your research to understand the market value of comparable properties in the area. Also look at average rental yields and movements in property prices and cost comparisons of properties sold in the area of interest.
You will need to be aware of all potential costs associated with the purchase – stamp duties, legal fees, building inspection costs and bank and mortgage fees. Work out your ongoing expenses such as utilities and council rates, repairs and maintenance, rental agency fees, and property insurance. Dint forget about Capital Gains tax liability if in the future you decide to sell your investment property.
If your potential rental income will be less than the costs associated with the property, remember that you can offset this loss against your income such as salary and wages, business or investment income. Also consider that a new or near-new building is depreciable over 40 years at a rate of 2.5% per annum. Fittings and fixtures can be depreciated over 5 years. You will need to get professional advice in order to maximise your depreciation claim.
It is always a good idea to secure the services of a professional, qualified property manager who will locate and screen suitable tenants, prepare leasing documents, collect rent, inspect the property regularly and also arrange for repairs if needed.