When you buy an investment property you need four people backing you up to help steer you in the right direction and save you from making costly errors and losing valuable financial opportunities.
You need a mortgage broker who will help you select the right mortgage product for your current and future investment plans.
A solicitor or conveyancer to read the contracts and advise of any unfair clauses and conditions in the contracts.
A building inspector to make sure the building your buying is in good repair.
Lastly you need an experienced buyers advocate to ensure you buy the right property in the right area at the right price.
What good is the mortgage broker, solicitor and building inspector if the property you buy is not going to achieve good consistent capital growth or be highly attractive to tenants?
These professionals are in your corner and will add value to your transaction but they’re all reactive to the purchase decision. Not pro-active.
If the property you buy is not near a significant amount of solid infrastructure that drives growth and attracts tenants, you might only receive 4-5% in capital growth per annum over a 10 year period instead of 9-10% per annum.
With compounding interest this could mean upwards of $100,000 in capital growth you could miss out on receiving.
If the property you buy is not located near infrastructure that tenants find highly attractive you could end up with one of three negative scenarios. Increased vacancy periods where the landlord foots the bill for the entire mortgage until a tenant is found. Dropping the rent for a reduced rental return to attract a tenant. Having to accept a low quality tenant which may cost you in lost rent or damage to your property.
Investing in property is not as easy as people think. Some of the issues we hear about are:
Buying the wrong asset
Buying in the wrong area
Buying the right asset in the right area but paying well over the odds to secure it
Property investment offers two sorts of return. Capital growth and rental return.
When we buy for clients we aim to achieve strong capital growth with a solid rental return.
Each week when you put your hand in your pocket to pay the shortfall between the mortgage and the rent. This amount of money is your buy in or investment to gain the equity from the capital growth.
It’s going to cost you to make good consistent capital growth. The other option is cashflow positive where you put no money in and receive $50 to $100 per week before costs and tax.
We’d rather pay $100-$150 per week and receive $50-$70,000 capital growth per annum than pay nothing each week and receive $5000 per annum revenue before costs and tax.
If you want to maximise both outcomes you need to purchase in an area with lifestyle attractions which you know a significant amount of people want to live near.
The usual necessities like schools, shops and transport are important but other attractions like restaurants, bars, cafes, markets, parks, gyms and bike paths are also major attractions for tenants.
The best tenants to market to are young professionals with disposable incomes who want to live in the inner suburbs of Melbourne. A lot of investors aim for families, but these are usually tenants who have significant weekly commitments and are often living on tight budgets.
A sound investment property decision is a balancing act and finding the equilibrium between growth, rental return, the amount you have to pay each week and tenant quality.
If you’re looking to invest and want to make a wise investment property decision call us to discuss how we can help you buy the right property in the right area at the right price.
IPB Where smart buyers come to buy.