Should I Buy an Investment Property?
Whether you should buy an investment property depends on a number of factors, including your financial position and the state of the property market. For many, buying an investment property turns out to be very profitable, and they use them to grow their long-term wealth.
Rental Management Australia continues to help numerous homeowners to profit from their investment properties. Here are a few tips we’ve learned along the way.
What is an investment property?
An investment property is a residence purchased for financial gain, not to live in. The primary reasons people buy investment properties are the financial benefits property can provide or for tax reasons. This can come from renting the property out to tenants, as well as selling the property once its worth has increased. There are also tax benefits to owning property that allow you to maximise your tax return. Investment properties are a long-term financial strategy requiring a high upfront cost that owners make back over time. An owner should make a profit after several years of rental income or through selling the property.
Where should I buy an investment property?
Location is an important part of buying an investment property. Property prices will vary significantly depending on the area, so you need to research the current market trends to find the most suitable suburb. Examining properties for sale online can give you a clearer idea of what you can expect to pay for a property. Look at the property layout, the age of the property, zoning and other potential developments in the area. Older properties usually mean more maintenance. Additionally, you can get an idea of how much rent you can charge by speaking with one of the reputable property managers at Rental Management Australia. Comparing different suburbs based on median house prices and rent will give you a rough idea of how long it will take to make back what you spend buying your rental property.
When should I buy an investment property?
Diligent research is key to deciding when you should buy an investment property. The real estate market fluctuates, with prices rising and falling over time depending on a variety of economic circumstances.
You should take advantage of low house prices when you can. Lower prices allow you to buy a larger property in a better location. Don’t wait until everyone is buying – get a head start. Similarly, if house prices are high, wait until the prices decline before committing to a property.
Benefits of an investment property
As the owner of a property, you have the ability to rent or lease out your property to tenants. This is a convenient source of passive income that aids you in paying off your mortgage. If you would like a detailed guide on how to rent out your property and how we can help you do so, click here.
Over time, the value of your property can grow depending on the housing market. Buying a property at a low price is ideal. You can then wait for its value to rise over time. Eventually, you can resell it for a substantial profit. Additionally, you can add features and improvements to a property that will increase its value.
Owning an investment property allows you to pay fewer taxes, thanks to negative gearing. Negative gearing refers to putting losses from your rental against your salary. This reduces your taxable income and allows you to pay less tax. A negatively geared property has a rental return that is less than your interest repayments and other property expenses.
Costs of an investment property
High upfront investment
Investment properties can provide a significant return over time but have a high initial cost. Most people can not afford to buy a house outright. Typically, people require a bank loan to finance their property investment. Before committing to property investment, make sure your finances are in order. You need to budget for bank repayments and living expenses appropriately.
Owning a property has ongoing costs beyond the initial purchase and the bank repayments. Council rates, strata fees, and insurance costs should all factor into the financial planning for investment. Additionally, owners need to keep the property maintained for tenants, which can cost more if repairs are needed. Renovations and additions to the property can also add to costs.
As an owner, you are responsible for the property. This means addressing any issues that your renters have with the residence. It may involve making yourself available at inconvenient times and spending time and effort to liaise effectively. It’s also possible that you may have difficult tenants who cause damage to your property or fail to make their rental payments regularly. If you don’t want the headache of managing tenants, contact Rental Management Australia’s team of highly experienced property agents.
If you’re looking to get the most from your investment property, have a chat with one of the RMA team to see if we have the tools to help. You can find the contact details for our offices here.