3 simple steps to investing in property
There’s a lot that has to be taken into account when it comes to property investment and while some things seem obvious, chances are there are certain elements you may not have thought about.
Step 1: Choosing your property
The area you choose to buy is a crucial element of property investment and determines if your investment will be a successful, potentially pave the way for future endeavors and hopefully, your retirement!
Investment growth is dependent on three factors:
- Population growth - Infrastructure and government investment - Employment opportunities and diversity
These markets have a synergetic relationship; with population growth comes increased infrastructure and more employment opportunities, and vice versa.
The investor only needs to think about what they look for in an area in order to understand what will be desirable to a prospective tenant.
Public transport, proximity to the CBD, retail and entertainment, employment opportunities and proximity to parks and walkways are the most desirable traits when purchasing an investment property and if an area possesses all these elements, you can expect consistently strong rental yields, and steady, long-term capital growth.
Step 2: Paying for your property
Once you have chosen the property you want to buy the next step is payment.
Before you take the plunge, it is wise to obtain an accurate cash flow analysis for the property you have set your sights on.
As an investor you should aim to avoid using your own money to pay off your property and in an ideal situation, your property will be cash flow positive, meaning that your rent and tax deductions will cover your loan repayments, without you having to dip into your own pocket.
Depreciation is another major element to take into account when financing an investment property. This allows investors to claim a tax deduction for investment-related costs over time, which can save you thousands of dollars in tax on your investment property each year.
This will essentially reduce your taxable income, meaning you pay less tax and will save money.
To take advantage of depreciation, it is vital to enlist the services of a qualified quantity surveyor to make a professional depreciation report based on construction costs.
Your professional advisors should be your first point of call when it comes to paying for your property.
Firstly, see your accountant - They will do an initial review of your finances, allowing you to maximise the allowable tax deductions related to the purchase of an investment property.
Next, see a financial planner - A good financial planner will help you identify goals and set an overall financial strategy to help you reach them.
When it comes to obtaining finance, the mortgage broker is the next stop - This is the person with access to a number of financial institutions who will loan you the money to buy your property and it is crucial that the sale of the property is not finalised until the lender has given formal approval that a loan will be made.
A mortgage broker is able to source the best loan choices for the borrower as they assess each individual’s situation and determine what is the most suited for the purpose and which features will be the most relevant.
In contrast, individual lenders can only offer their own products…they won’t tell you if another bank has a better product with more suitable features than they do!
Step 3: Maintaining your property
Once you’ve chosen and purchased your investment property you now need to focus on maintaining it and employing a good property manager is the best way to enjoy your investment property from a distance as a true hands-off investment.
A capable property manager will be responsible for ensuring that your investment property is successful. This will be done by screening all potential tenants, ensuring only those who are best suited will be allowed to live in your property. Your property manager will take care of all the jobs you would prefer not to do, like chasing tenants up for rent, conducting consistent routine inspections, maintenance issues, and all leasing aspects.
Employing a professional to manage your investment is crucial to ensuring that every element of your property is under control.
Investing in property can sometimes be seen as a very daunting task, and for some, a very distant reality. The truth is however, if you surround yourself with the right team, experts in their fields, property investment can be made easy.
At the end of the day, the property market is cyclical, relatively liquid, stable and tangible and provides the gateway to many people’s financial freedom.