Published on May 19th, 2014
Question of the week revisited – 15 July 2013 – What should I look for when buying an investment property?
What should I look for when buying an investment property?
This is a follow up question to the question a couple of weeks ago about the impact of the new hospital. A lot of people have realised that the influx of workers will result in a tightening of the rental market; making it harder to find a rental property if you are a tenant, and pushing prices up across the board.
There are a number of things to consider when purchasing an investment property, and different people will focus on different aspects of the investment process when purchasing.
- Rental return – net vs. gross
Return on your investment is often broken down into rental return (how much rent you get each year) or Capital growth (how much the property goes up in value while you own it.
Your rental return in turn can be looked at as a Gross Return (how much of the purchase price you get back each year from rent); Net Return (how much of the purchase price you get back each year from rent, less expenses like rates, agents fees, strata fees etc).
We have a number of places in Bega that would return 4 – 4.8% net return.
- Capital growth
Capital growth is where the speculative part of investing comes into play. You will know what rental return you will get from a property before you buy it; but you can’t factor in what the property will be worth in the future. However you can look at key indicators that might foreshadow good capital growth – like a new hospital in town!
Location is important when looking at an investment property. You should look at what is around the property (businesses, roads, neighbours); how close to town, schools and transport it is. At the moment with the lack of supply of rental properties, tenants are less fussy on location, but you should look at investing as a longer term proposition and take into account if the rental market slows, then location could be a deciding factor between a tenant choosing one home over another.
Does this mean you should avoid a place because of the location? I don’t believe it should be the only factor; but if you are looking at a potential investment property and the location isn’t ideal; that should be reflected in the price
- Tax benefits
Make sure you talk to your accountant before you purchase an investment property. They will be able to advise you on how to maximise the tax benefits of owning an investment property. They will also ensure the structure you set up, will help avoid any nasty tax surprises if you decide to sell the property.
A new property should also allow you to claim depreciation on the asset, which is often overlooked when buying an investment property.
- Costs & Maintenance
This is too often overlooked when buying an investment property. Given the strong rental prices currently available, it is easy to see an excellent rental return on a cheaper property. Be careful though, as you might end up spending good money on repairs and maintenance.
Other “hidden” costs that can catch first time investors out are strata fees in a unit complex. Be sure to discuss with the agent, what all the outgoings will be.
We believe now is an excellent time to be purchasing residential property in Bega. We have produced an “Investors Pack” with specific details for a number of our current Bega listings. Give the office a call and Joc will send you through the information. If you are looking at investing, take the time to talk to your accountant or finance advisor before purchasing.
Disclaimer: All thoughts are my own; you should undertake your own professional advice (legal, financial or astrological) before undertaking to purchase property