BUYING into the Great Australian Dream is just one way onto the profitable property ladder.
The other direction to take is the investment route, but the pathways to the two goals could not be more different.
A truly savvy investor will do their house hunting with their head and a calculator in hand, rather than letting their emotions get in the way. But when you’re parting ways with a huge chunk of cash keeping your heart out of the equation could be easier said than done.
Investing in residential real estate has become an increasingly popular method for building personal wealth in recent decades. Some investors have reaped millions while riding the property wave.
But a slowdown in the market, coupled with tighter lending practices for investors and a national debate around negative gearing has had some people second guess property investing. However, with interest rates at an all-time low, Property is still a substantial investment class.
It’s in the numbers
According to property data firm CoreLogic, housing finance figures show that investor activity is on the rise across Australia.
“Over the 12 months to May 2016, combined capital city home values have increased by 10 percent while total returns have been recorded at a higher 13.9 percent,” senior analyst Cameron Kusher said.
“Looking at individual cities, all cities except for Perth have recorded positive returns over the past year.”
“In all other capital cities, returns from residential property have been positive. In many of these cities the total returns have been driven more so by the rental returns rather than the capital growth which has been the key driver in Sydney and Melbourne,” he said.
“A more balanced investment approach which focusses on moderate capital growth and relatively strong rental returns is likely to be a superior housing investment profile over the coming years.”
“This data also highlights why housing investment has been so popular. In a low-interest rate and subsequently low return environment housing has, over recent years, offered attractive yields.”
Start at the beginning
The first step to smart investing is knowing how much money you have to spend. That sum needs to include every cent from the purchase price and stamp duty to solicitor’s fees, building inspection or strata reports and potential property manager payments if you are not going to manage the rental yourself.
Once that dollar figure is evident, and your home loan finance is in place, then shopping for bricks and mortar can begin.
Put your thinking cap on
Consider the golden real estate rules of “location, location, location” as well as “buy low and sell high”. They might sound cliché, but they make sense – this is a business decision after all.”
To know where the good investment properties are, do your homework and do it well. Work out where there is still potential for great capital growth in the medium to long term (five to 10 years) and think about where the best rental yields are.
Look at the local infrastructure as it is now and what might be planned for the future, this will give you an idea of how the suburb is gentrifying. If a big brand supermarket or homewares store have moved into the area, then ask yourself “why?” – Do they know something about where the neighbourhood is heading? The same can be said of old pubs being given new life and cafes replacing corner stores.
Think of others
Rather than look for a home that you would personally love to live in, look for a property that the primary demographic of that particular area would want.
Ask yourself “What kind of property is popular with both tenants and buyers?” There is no point investing in a big four-bedroom home with no parking if that is the kind of property that local real estate agents can’t offload. On the flip side, why invest in a pint-sized studio at a bargain price if locals expect plenty of space?
Remember also the “15-minute rule” when buying an investment property. Tenants, especially in metropolitan areas, like to consider the “walkability” of a suburb when they’re house hunting. By choosing a property that is within 15 minutes of a train station, cafe strip or shops you should always have a steady stream of renters, hopefully, willing to pay top dollar.
Just do it
After settling on a few neighbourhoods and property types that tick all the investor boxes, it is time to get your hands dirty.
The best way to educate yourself is to go to local auctions, attend open for inspections and study online listings to familiarise yourself with the competition and just how much they are willing to pay. You will also see what the “hot” property is and what is just lukewarm.
Subscribe (at a fee) to a property data firm that can send you regular suburb updates with sale prices and current median prices to stay on top of the game because at the end of the day, knowledge is the key to a successful investment.
Story by KIRSTEN CRAZE | news.com.au