Many of us thinking about building wealth may be considering investing in property, particularly as it is considered by many a “safer” option than shares. As many experts predict, 2012 is predicted to be a good year for investors who might be considering taking the plunge.
There are plenty of advantages associated with investing in property including the potential for capital growth, rental income and tax benefits. But there are risks that come along including finding quality tenants, earning the rental income you need and meeting any costs for maintenance and repairs. And of course capital growth is not guaranteed.
If you are confident that property investment is right for you then you need to have a plan. Start by working out how much you can afford.
If the investment property is your first foray into property you may wish to sit down with a Multi-Choice Home Loans Broker to discuss some of your options for a best home loan. There is a variety of lenders to choose from with currently many a good offer available to you.
You will need to have saved enough money for a deposit as well as any additional costs such as stamp duty, legal fees and inspections.
If you want to avoid mortgage insurance you will need to have a deposit of at least 20%. If you are willing to pay mortgage insurance it may be possible to borrow up to 90%. Discuss the advantages of either option with your home loan broker in order to make the right choice for your situation.
If you already own your home and have built up equity you can use this to help pay for your investment. You can use this equity towards the 20% deposit and then get a separate loan for the remainder. You will also need to make sure you can afford the monthly payments (usually interest only, however you can make principal and interest repayments if you wish. Remember, only the interest is tax deductible). Of course, rental income is taken into account but be realistic about the level of rent you are likely to receive. You will also need to consider there may be times when the property is without tenants.
Once you have worked out your budget, it’s time to go on the hunt for a suitable location. As a general rule look for areas that are close to amenities like public transport, schools and shops. Also focus on areas that are within commutable distance to commercial centres where lots of people work.
Once you have narrowed down the areas you’re interested in you can look for appropriate properties. Think about likely tenants. If it’s close to universities or an area that appeals to young professionals a unit might be a good option. If it’s an area full of young families a house with a nice backyard might be a better bet.
Whether you choose a house or a unit the kitchen and bathroom are probably the two most important features. Built-in storage is also a big plus. Just make sure the property is neat, tidy and has the features that will appeal to your target market.
Make sure you do your due diligence before going ahead with the purchase. Do the relevant building and pest inspections. Also make sure you do your homework on the value of the property to ensure you don’t pay too much.
Once you go ahead and make the purchase you need to determine whether you want to be a “hands on” landlord or pay a professional agent to do the work for you. Agents generally charge about 7 to 9 percent of gross rent to screen potential tenants, collect rent and organise repairs. They will also carry out regular inspections.
Finally make sure you have the appropriate insurance in place including building insurance and landlord protection insurance.
