How to Make Smart Property Investments: What You Need to Know
We all love property. We love looking at it; we love talking about it; we dream about buying, building, and designing it. We watch TV shows about it, read articles about it, and eagerly share opinions on the price of it.
Given this obsession, it’s no wonder that property is one of the most popular asset classes with investors. But property investment success takes more than an interest in real estate and casual knowledge of the market. You need to make smart decisions informed by research, have a solid investment strategy, and be committed to long-term growth.
Get to Know the Market
Before you begin seriously thinking about investing in property, you need to understand how the market works.
While property values generally increase over the long term, shorter-term price movements tend to be more cyclical. Market trends are also influenced by a range of factors, and can vary significantly between states, cities, and even neighbouring suburbs. So, it’s important to spend some time learning about how the property market is tracking and what lies ahead.
As part of this, you should look at broad factors like interest rate forecasts, economic performance, and consumer sentiment. You should also consider demographic changes, the balance of supply and demand, the impact of government policies, and infrastructure plans.
Be Clear About Your Motivations
What are you hoping to achieve through property investment? Being clear about your goals will help you stay focused and keep you motivated through the inevitable periods of uncertainty. It also allows you to plan the best way to achieve them.
For example, if you want to supplement your current income, properties that provide ongoing rental income should be your focus. But, if your goal is to secure your family’s financial future, long-term capital growth may be more important.
Take a Holistic View of Your Finances
Property investment is, first and foremost, a financial decision, and there’s much more to consider than just the purchase price.
When working out your budget, remember to include land transfer duty and conveyancing fees in your calculations. If the properties you are targeting are likely to require updates or renovation, this should also be factored into your upfront costs.
You also need to be aware of ongoing costs, including mortgage repayments, council rates, insurances, maintenance, and property management fees. Before committing to a property, make sure you will have the cash flow to cover these. Also, make sure you have enough of a financial buffer to cover these costs if the property ends up sitting vacant for a short period.
Choose Locations Strategically
When deciding where to invest, it’s natural to focus on the areas you know well or are personally drawn to. However, unless you are buying a property for yourself, this is most likely not the smartest decision.
Depending on your investment strategy, you should target areas that are attractive to tenants or future buyers. Look for locations that have strong transport links and offer easy access to a range of amenities. Prioritise places where the population is growing, demographics are changing, jobs are being created, and new infrastructure is being built.
Consider Property Types and Trends
Different property types suit different investment strategies. Apartments and townhouses tend to be more affordable to buy and produce higher rental yields, but offer more modest capital growth. Whereas freestanding houses are comparatively more expensive, but tend to achieve greater growth over the long term.
Different property types also fall in and out of favour, as cultural norms and personal tastes change and evolve. We recently saw a clear example of this when the COVID-19 pandemic significantly changed both buyer and renter priorities. Interest in larger properties in popular lifestyle locations increased significantly, while demand for inner-city apartments dropped drastically.
When planning a property purchase, use this insight to inform your search criteria. Target the property types that best suit your investment strategy and are most in demand.
Know Exactly What You’re Buying
While there will always be some risk involved in investing in property, you can minimise it by doing your due diligence.
Before committing to any specific property, make sure you thoroughly check its true condition. A pre purchase house inspection can uncover hidden issues that might affect its value or require expensive repairs down the road. Any issues identified during the inspection process can also be used as leverage during negotiations, if you choose to proceed.
Make Sure You Have the Right Support
The property investment process is complex, and you shouldn’t try to go it alone.
A good mortgage broker can help you understand your financing options and secure you the best loan terms. An experienced financial advisor can help you develop your investment strategy, equipping you with a clear roadmap to success. And your accountant can advise you on all of the tax implications, from depreciation and negative gearing to potential capital gains tax.
When you’re just starting out, the support of an experienced property professional, like a buyer’s advocate, can also be invaluable. They can help you assess your options, guide you through the process, and help set you up for long-term success.
