Buying long term investment properties is one of the most popular investment strategies for Australians, and has been for some time. A good investment can create ongoing cash flow, improve your wealth, bolster your assets and reward you with long term financial security. There is a flip side though, and a long term investment in properties made without enough knowledge or forethought can become a drain on your finances. Whether you’re an old hand at property investment or thinking of taking the plunge for the first time, here are eight strategies for long term investment properties to help out.
- Finding the right property
Once you’ve decided to invest, you’ll need to choose the right property for your specific investment needs. Consider your price range and whether the property you’re buying is likely to increase in value. You should also consider what kind of property you want. Do you want a house or unit; will it be old or new? Will you be renovating to sell? Do you want a holiday house? Do you intend to rent your property out?
- Location, location, location
Do you want your investment property to be near your location or further afield? Many people feel more secure buying property close to home because they know the area, the local property market, and they can manage and maintain the property themselves. However if you’re looking for a holiday home or have found a property while travelling that you believe to be a good investment, you should consider employing the services of a property manager. Real estate agents often take on this role, and they can also work as landlord if you have any tenants.
- Do your research
Once you’ve decided what kind of property you’re looking for, research as much as possible. You need to know about the current property prices in the area you’re looking in, and whether the area is undergoing development. Speak to local homeowners and real estate agents – they’ll have the insights you can’t get from anyone else, like whether one side of the street is seen as nicer than the other.
- Buy with your head, not your heart
If you find a property you love it can be tempting to snap it up there and then. If you don’t understand the property market or dynamic, or haven’t had the property checked by an inspector, you could be buying yourself a lot more trouble than you bargained for.
- Cash flow vs capital growth
Is it more important for your property to create cash flow, or generate high capital growth? There are pros and cons to each. Properties that turn over good cash flow can be paid off faster but there aren’t any tax benefits. Investors with growth properties are eligible for negative gearing – tax benefits on investments where the costs exceed the profits – although capital growth is not a sure thing year-on-year.
- Choose the right mortgage
Be sure to get advice and shop around before settling on a mortgage. Usually it’s best not to tie up your investment property loan with your main property home loan since interest on an investment property loan is generally tax deductible. You’ll also need to decide between a fixed rate or a variable rate loan. If you can, talk to a finance broker, as they can give you professional advice on what choices will work best for your financial security.
- Use equity from another property
Equity is the amount of money in your home that you actually own, and it is easy to calculate by working out the difference between what your property is worth and what you owe on the mortgage. Leveraging the equity you have in your home can be an effective way to buy a long term property investment, because it can allow you to borrow more money against your investment property, which will increase your tax deductions.
- Think long-term
Remember – this is a long term investment property. Prices might not rise straight away, or as quickly as you expected. The longer you can afford to commit to a property, the better. Work your investment property in a way that increases your wealth and helps secure your financial future.
As with any kind of investing long term investment properties involve some risk. If you have any questions about investing, or want to discuss your situation, it’s best to seek professional legal and accounting advice.
The team of experienced tax accountants and lawyers at The Quinn group can help you all the way through the process of finding, buying and managing a long term investment property. Call us on 02 9223 9166 or submit an online enquiry.