Investment Properties: Make The Right Choice

Property investment is a good, solid, long term investment.  While prices may falter occasionally, generally speaking, property values go up, not down.

Even during the current global financial crisis, Australia’s property values rose in most states, while other developed countries saw big falls.

Your first investment property is not necessarily your own home. Some people buy a small apartment to rent out and this can be a strategic accumulate funds so you can in time buy your own place, in an area where you want to live. Increasing numbers of young Australians are choosing this route, buying in one suburb while renting in a more desirable and expensive area or living at home for a while longer.  Still others are diversifying into non-residential property via property trusts and syndicates.

Real estate is seen as a more stable investment than shares, and there can be the tax advantages associated with negative gearing.  However, as with any investment, there are no guarantees. Property prices go down, as well as up, and sometimes tenants are hard to find especially good ones who pay on time and take care of your investment.

When purchasing an investment property there are a few things to consider.

Rental Yields
How much is the average rent in the surrounding area and suburbs, for a similar type of house?  In some circumstances the rental income more than covers your mortgage repayments, but this is rare, especially in the beginning.  Look at vacancy rates in the area.  If there is a good supply of tenants then rents will be higher.  But if you are fighting for tenants in a low demand area then you wont have much power with the rent you can charge.

Interest Rates
Bear in mind that interest rates go up and down over time.  So factor in any rate rises if you have a variable rate mortgage.  There are many choices in home loans when it comes to investing, so talking to your local mortgage broker is recommended.  In some cases, you can increase rent during rises in interest rates, but not always.  So keep an eye on the market at all times.

Capital growth
Capital growth is the increase in the value of your property over time and is one of the main reasons people invest in residential real estate.  If house values are rising, then you have yourself a wonderful investment.  But if prices start to fall due to an economic downturn for example, then you can find your investment doesn’t look so good.  Buying a home in the right area is essential, and buy the right property, at the right price.

Research current house prices and keep an eye on sale and auction results in the papers, or buy reports on specific suburbs from researchers like Australian Property Monitors Home Price Guide . Talk to real estate agents and observe at auctions.

Negative Gearing
Gearing basically means borrowing to invest. Negative gearing is when the costs of investing are higher than the return you achieve. With an investment property, that’s when the annual net rental income is less than the loan interest plus the deductible expenses associated with maintaining the property (such as property management fees and repairs).

When you’re negatively geared you can deduct the costs of owning your investment property from your overall income reducing your tax bill. High-income earners benefit the most, because they are in the top tax bracket.

Call us today to find out more about choosing the right investment property.  Simply call us or submit your details on line.