Australians love the property – including investment properties. Though like any other business venture, it should start with careful research and a thorough understanding of the market.
Looking for the right property, getting a mortgage, and finding the right tenants are all important factors to consider.
Here are some tips designed to help with your purchase of a rental property:
1. Think long-term
When buying rental properties, thinking long-term is the key. Ideally, forecasting should be done in conjunction with your accountant to determine how long you retain the property and put into place key metrics to ensure your property meets your requirements.
2. Decide if you’ll be the landlord
You should first ask yourself if you are ready and willing to be a landlord. It’s easy to underestimate the task of a proprietor.
Being a property owner means you are willing to spend extra time and mental energy in managing your rental property – which is not easy, and entails a lot of work and dealing with different people.
3. Seek pre-approval first
A common mistake is not securing finance before looking for properties. Getting your financing in order and available beforehand helps prevent you from missing the right property.
A pre-approval for finance can be obtained when you’ve found the right property, though you don’t have access to funds.
In addition, getting pre-approved, whether for an equity loan or a bridging loan, provides certainty on the amount of finance you’re eligible for, as well as the loan rate.
4. Securing the right property
There are many factors that can influence the value and return of investment, including:
- Population and job growth
- Vacancy rates
- Rising rental prices
- Percentage of renters in the area
- Neighborhood ratings
- Property tax
- History of home values
4. Understand your return on investment
You need to understand the return on investment of a property in order to determine its profitability.
This includes comparing the estimated yearly rental income with operating expenses. It’s important to also forecast the amount required as a slush fund to be used for general maintenance and to complete more substantial future works if required.
6. Set a budget for emergencies
Further to the above, when planning for your rental property, it’s wise to aside a budget for emergencies or unexpected expenses. A good benchmark is to save 20%-30% of the income for maintenance and emergencies.
7. Consider engaging with an agent
Being a landlord requires you to know certain laws, such as housing and landlord-tenant laws. In addition, inspections need to be conducted regularly, and profits/ losses need to be managed and reconciled.
Alternatively, a property manager can screen tenants, take care of repairs, and collect rents.
Rental property can be a good investment, but it requires careful planning, consideration, and execution.