Its My Home : 2017
25 IT’S MY HOME IT’S MY HOME As with any investment, there are a variety of financial decisions to be made when purchasing a property. Make sure you add up all the costs of owning it and make sure you can still afford it if the tenant doesn’t pay the rent for a while, if there are surprise repairs and if interest rates rise. Most people that hold onto property for the long term generally make money whereas those that lose money are often those that are forced to sell in A PROPERTY WITH MULTIPLE BEDROOMS IS GENERALLY MORE ATTRACTIVE TO FUTURE TENANTS AND BUYERS THAN A SINGLE BEDROOM PROPERTY In order to obtain the best possible rental yield and capital gain from an investment property, there are a number of key aspects you should look for. An important point to remember is that a property does not necessarily have to be pristine to make a good investment. Numerous buyers will pay a premium for perfection, but you can often obtain a much better deal with a property that is not completely immaculate but in a better location. You can’t change a property’s location when you have more money later on, but you can change its condition through renovating. Further to this, cheaper properties can be easier to tenant as they appeal to a larger portion of the population than a higher end property. ➤ LOCATION As a general rule, the best suburbs to invest in are those that have limited stock and high demand (from high income local workers). These suburbs are usually located close to city hubs, shops and transport and it helps ensure your investment is always tenanted and easy to sell in the future. Look for properties within 10 to 20 per cent of the median area price that are positioned away from noise and main roads. ➤ SMALLER BLOCKS Properties in big blocks are generally more expensive in the long run as they come with additional strata fees and amenity expenses for pools, lifts and gyms. Smaller blocks, by contrast, have less ongoing expenses and are more unique as there are typically fewer available for sale or for rent at the same time. In smaller blocks, it also takes less time to make important decisions, meaning repair work can be done quickly before expenses escalate. ➤ TWO OR MORE BEDROOMS A property with multiple bedrooms is generally more attractive to future tenants and buyers than a single bedroom property. It’s much easier to get two people each paying $500 per week for a two bed than it is to get one person paying $700–$800 per week for a one- bedroom property. BEST FEATURES TO LOOK FOR IN A PROPERTY FINANCIAL CONSIDERATIONS 24 the short term. You should calculate your profit break-even point before making an investment, comparing expected rental income against mortgage interest and other expenses to be paid before tax. This will help you in assessing whether your property is a viable investment. ➤ BUDGET Before making an investment, you should always determine exactly how much money you have coming in and how much you need to borrow. Having a clear picture of your current financial situation will help you make a more informed investment decision. When it comes to borrowing funds for an investment, many people are afraid of being in debt. While you should be careful with your finances, remember that debt can often mean you can buy a better property in a better location which can, in turn, reduce your risk of having it unlet or not being able to sell it in the future. However, in a falling market, debt can increase your losses, so always double check your numbers. ➤ BANK VS MORTGAGE BROKER The decision of whether to borrow through a bank or mortgage broker is one which stumps many investors, particularly first homebuyers. While there are a variety of pros and cons associated with each borrowing avenue, the right decision will ultimately depend on your particular lifestyle and financial situation. When selecting a home loan provider, remember to look beyond the loan with the lowest interest rate and check for hidden costs or fees which could pop up down the line. You should be aware of any monthly account keeping fees your provider might charge and what would happen if you decided to sell your property later on – how much would it cost to cancel the loan? Choosing the cheapest loan might save you a few thousand dollars per year, but going with a lender that gives you a bigger borrowing capacity to buy an extra property might make you tens of thousands more. Investing in Lenders Mortgage Insurance (LMI) is another worthwhile consideration as it can potentially allow you to pay a lower deposit and borrow a greater amount of money. Not only could this enable you to purchase a home sooner, it could mean that you could buy a better property in a better suburb. Even if you have a 20 per cent deposit, it’s worth considering only putting down 10 per cent, adding the LMI cost to your loan and then putting the remaining 10 per cent into an offset for unseen emergencies. That could be the difference between hanging onto your property if you lost your job or had a strata special levy and being forced to sell at a loss. The LMI cost is often insignificant in comparison. ➤ CONSULT THE PROFESSIONALS Using a team of professionals such as engaging a buyer’s agent, professional valuer and building inspector is a great way to free up your time and find the perfect investment faster. While these experts come at an added cost, they can be well worth the investment. A buyer’s agent is able to search and negotiate properties on your behalf and will often have access to properties before they hit the market, giving you an edge over other buyers. Similarly, investing in an independent valuation and building inspection can provide you with an unemotional assessment of a property’s worth and save you from problems later on down the track. Chris Gray is CEO of Your Empire, a buyers agency which builds property portfolios for time-poor people – searching, negotiating, renovating and managing property on their behalf. Chris’s team buys 1-2 properties a week and often spends $5m+ a year renovating on others behalf, providing a unique insight into market conditions and buyer and seller sentiment. Chris hosts ‘Your Property Empire’ each Monday on Sky News Business channel, where he interviews various heads of property research companies and major industry figures. Chris is a qualified accountant, buyers’ agent and mortgage broker. For more information visit yourempire.com.au, chrisgray.com.au and follow Chris on Twitter: @ChrisGrayEmpire ABOUT CHRIS GRAY Pictures:Shutterstock.