We all hear the success stories of others and how they have managed to create wealth and income streams through investing in property. This doesn’t happen overnight and requires good planning, money management and discipline over a long period of time to be able to get it right.
We have outlined below some basic steps and tips to help you prepare for your property investment journey.
1. Personal income and expenses
It’s vital to have a good understanding of how much income you make and what your expenses are going to be each week and year so that you have an accurate figure of your surplus cash. Be conservative and don’t overstate income or understate expenses. We highly recommend speaking to an accountant or financial adviser for advice on your ability to afford an investment property.
2. Job security
Being in a secure job gives you confidence that you are going to be able to service living expenses and loans on an ongoing basis. If you don’t have secure ongoing employment, it may not be the best time to invest in property.
3. Borrowing capacity
The most effective way to know exactly how much you can afford to borrow is to speak to a mortgage broker with good investment experience. They work with banks every day and understand all of the loan products in the marketplace and what is most suitable to you.
4. Know you costs
Loan repayments are generally the major cost in investment properties, however stamp duty, council rates, water rates, insurance, body corporate fees, land tax, property manager fees, repairs and maintenance are some of the other cost items that need to be accounted for.
5. Repairs and maintenance
As much as everyone would like to purchase a property and never have to spend anything on it, it is inevitable that at some stage some things will go wrong. It may be as simple as light globe replacements, periodic gas and electrical safety checks, smoke alarm services or a door not latching correctly, right up to a full re roof or painting of old windows and weatherboards or replacing heating and cooling units. Be prepared for these items as there is no such thing as a ‘perfect’ property.
6. Management
Having a quality property manager in place ensures that suitable tenants are renting your investment property, looking after it and paying rent on time. Property managers also arrange any minor repairs and maintenance, pay council and water rates and limit vacancy periods by arranging for new tenants for when there is a changeover of occupancy.
7. Know the rules
The Residential Tenancies Act has been updated. As a result, a number of reforms were introduced on 29th March 2021. There are a total of 132 reforms that will affect investment properties. Good property managers are across these laws.
A link to the full list is below https://www.consumer.vic.gov.au/housing/renting/changes-to-renting-laws/guide-to-rental-law-changes
8. Have strong buffers or savings
It would be reckless to assume that an investment property will be occupied 100% of the time from the day it is purchased, and that nothing will go wrong with it. Ask yourself “if my investment property was vacant for 6 months” or “if I have to replace a roof” will I be able to afford it? Can I withstand a 1 or 2% interest rate rise?
9. Tax time
Make sure to keep records of all transactions related to the property to help maximize deductible items. Property managers help streamline this process by providing and end of year summary or all income and expense items. Depreciation schedules can be obtained via a quantity surveyor to optimize claimable amounts.
10. Treat property investing as a business
Like most business you need to spend money to make money. Keeping your property up to a high standard by being on top of maintenance items, putting money into improvements and employing a quality property manager will only benefit you in the long-term by providing a better home to your tenants and will ultimately achieve the best rental return possible. Don’t get bitter when council rates and minor maintenance items arise. They are just the cost of doing business. If the right property in the right location is purchased, the long-term capital growth and passive income stream will far outweigh these common cost items.
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