When buying an investment property you should treat it as a business decision and not be emotional. A common mistake is that people buy a house they would want to live in, your tastes may not be the same as your tenants, at the end of the day you want a property that generates a cashflow and appreciates in value.
Not all properties have good rental return or capital. Determine what your strategy is. Is it negative gearing, positive cashflow or/and capital growth that you are after, make sure you know before you start.
Research research the area you are keen to invest in. Check out the future development plans with the local council, investigate the capital growth over the last 12 months, 5 years, ten years, demographics, predicted growth rates and the potential rental income.
When negotiating with the owners the terms of the contract, remember you can negotiate anything, longer settlement, access before settlement for renovation, a smaller deposit or even that they leave equity in the property, you do not know until you ask.
Sound legal advice will ensure that the contract is fully examined and approved and that any changes are allowable. A good solicitor should be an integral part of your investment strategy.
Professional property management frees you from dealing with tenant issues and helps you keep your distance. Your property manager will be up-to-date with changes to the Residential Tenancies Act, can negotiate on your behalf and is in a position to obtain credit checks on potential tenants.
Any income generated by the property will be assessed for tax. Any interest you pay on your loan, depreciation, or maintenance can usually be offset against the income and therefore lower the amount of tax being paid. If the property is not your primary residence at the time of sale you will be assessed on any capital gain. Capital gain is the difference between the ‘cost base’ and sale price. (The cost base is the price you paid for the property along with any expenses when buying and capital improvements made during ownership.)
Homes close to CBD have historically experienced the greatest rate of capital appreciation. However, this growth can vary dramatically from suburb to suburb. Areas become trendy or have greater accessibility to better public transport and highways. Major infrastructure can open up an entire ‘new’ area and it can experience a major growth spurt.
Buy the worse house in the best street. Certain areas are popular and trendy and usually always will be, however there is no guarantees. Do your research and understand what motivates the market and what is influencing the area you are looking in.
The best aspect is a north east facing block that will receive the north sun in winter. Access Level blocks generally bring a higher price as occupants have little or no difficulties getting up stairs etc. Building costs are usually higher with awkward blocks.
Some suburbs have different occupancy rates to others and some blocks of units will also have different rates to others. Call agents in the area as if you were looking to rent and see the availability and cost of renting in the area, if there are a large number of vacancies it might be better to chose another location.
Good tenants can be hard to find. Good tenants on a long lease will help your cash-flow. If the property you are considering has an unstable tenancy record find out why.