What to look for when investing in property.
Whether you invest in shares or property or any other asset your return on that investment is generally a combination of your income return i.e. the rent or the dividend or interest and the capital growth you realise on that investment.
Most investors would agree that the income return is a lot easier to calculate than the capital gain you will derive. Whilst we can calculate the capital growth that we have had on an investment to date it does not mean that we will continue to receive that same level of growth in the future.
On the other hand many investors would agree that determining the income return is a lot easier to predict than the future capital growth.
When you invest in property you need to consider the following factors;
1. Why property?
With legal cost, stamp duty, loan establishment cost and conveyancing fees, real estate fees incurred on the eventual sale of the property, property is considered a medium to long term investment i.e. 10+ years.
2.What size deposit will you make on the property investment?
The greater the deposit generally the lower the interest rate you can negotiate on the loan and the higher the probability you will receive a loan to purchase the property. Note also that you want to have a sufficient deposit to avoid Lenders Mortgage Insurance.
Whilst there are merits, from a tax perspective, to an interest only style of loan we have found that most investors benefit from a principal and interest style mortgage. By paying principal and interest on the loan over a say 25 year period not only is the equity in the property increasing via the growth in the property’s value but it is also increasing through the reduction in the debt on that property. This style loan is also advantageous should interest rates increase, or you need to do significant repairs on the property without the tenant occupying the property or you were to incur a special levy on the property.
We also prefer clients to purchase a property in a location that people want to rent. That is, an area close to work that has nearby facilities. Conversely, this is not always similar to an area where you would like to live. You are not buying a home you are investing in an investment property.
Should you have any questions in regard to property investment please feel free to contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.