Before you buy investment property, you could ask yourself a few simple, yet powerful questions.
The content is general in nature and it’s important for investors which may be contemplating buying investment property to note further investigation is required in order to identify specific properties for investment potential…
According to Australian Bureau of Statistics (ABS), 97% of people aged 60 or more are in some way reliant on a government pension. In case you don’t know how much a pension is worth, imagine trying to survive on $15k pa (if single) or $24k pa (for a couple).
(a) Debt free family home still doesn’t produce income for utilities, food, transport, hobbies, and holidays
(b) Superannuation will be nowhere near enough to replace the income required to live life on your terms
(c) A “rule of thumb” formula for calculating the size which your investment portfolio (net of all liabilities) needs to be is to multiply the required income stream you want by 20.
For example: Required income (debt free) x 20 = Investment portfolio value (net of liabilities) $80,000 pa x 20 = $1,600,000
(Above figure excludes the value of your family home and does not factor inflation)…
First question, “am I buying investment property or (PPR) principal place of residence? Next, “why would I buy investment property”? The answer to both questions is where to buy and what area(s) you know or feel comfortable?
Buying investment property or principal place of residence in context to if you are going to live there?
Generally speaking, any in market it is important to understand capital growth cycles, (structural change which is occurring) your target market (demographics, right style of property for right location) and population growth.
Key is understanding how the contract does not get in the way of closing deal because the contract must protect the interests of you as the developer and ensure settlement takes place smoothly. Of course, you want the maximum financial return, right?
Investment property has many different purposes, you are wanting to maximise your wealth via property investment so you need to factor your capital, borrowing capacity, lending institutions combined with macro and micro indicators.
Buying investment property involves due diligence with a clear strategy to focus on, which can give you real confidence you are investing based on correct research criterias and more than just a gut feel.
Buying investment property the infrastructure investment: The government and private enterprise spend billions of dollars each year on roads, transport, hospitals, mining, resources etc…
Look at what they are spending funds on and what impact the infrastructure has long term in those areas.
Buying investment property the populatIon growth: The Australian national population growth rate was 1.7% or 394,000 new residents in Dec 2012. Take note of where those people are moving too. Is it a capital cities, regional cities or regional areas? We also look at interstate migration, which is generally associated with employment opportunities or lifestyle choices.
Buying investment property the economy and employment factors: What is the diversity of industry? Consider what business/industry is in the area you are investing in.
Does area have a cross section of industries that can support current and future employment or is it reliant on one main industry?
Buying investment property the supply and demand relationships: Is there an oversupply or undersupply of residential housing? If there is an undersupply you are likely to see increased rental income and improved cash flow for an investor.
In this scenario you will also see a lowering of the vacancy rate. Undersupply could also put pressure on property prices. With an oversupply the opposite normally occurs for an investor. Rents decrease, vacancy rates increase and property price can decline.
Amenities: The better the amenities are the more attractive an area become for people wanting to rent. Look for good employment, schools, shopping centres, medical facilities, sporting facilities and café lifestyle.
Transport is a very important consideration: Look for a combination of good public transport and does it service the area well especially in the exact areas you are looking to invest in?
Buying investment property and rental yields: Rent yields are determined by the supply and demand of property. When investing it’s finding the balance between your rental income and cash flow.
If there is an oversupply of rental properties your rental income will reduce. This affects affordability and holding costs for investors.
Value: Look at the price of the property relative to similar properties in the same area. This will give you an idea of the real value of the property. Also consider the likely resale value by looking at the properties that are currently being sold in the area.
Design: Take a good look at the design of the house. Is it practical? Will people want to live in it? Does is have good natural light? What aspect does it face? What is the internal size of the property as this could affect future resale?
Projected Capital Growth: When you look at the macro and micro indicators to help you decide where to invest you give yourself a strong opportunity to see long-term growth with your property.
You can clearly see the crucial relationships of due diligence and number crunching in conjunction to all the above and using these macro and micro indicators which can really help you answer the big and important question, where do I buy?
Buying Investment Property