Investment Property

Hi Followers

In a very un-certain world people want to be informed with ALL the facts prior to investing in shares, property or high interest saving accounts. Because of this I thought Id post this investment guide i came across this morning:

Property has always been a popular investment option in Australia, particularly investing in residential units or houses. It is an asset class that has historically, over the long term, produced a reasonable return. However if you are buying an investment property directly (as opposed to investing in a managed fund) then the specific property that you choose will have a significant influence on whether you make a good long-term profit or not. Here are some tips to help you out.

Step 1 - Location
For a successful investment, you must acquire the right property in the right location at the keenest possible price and with its long-term viability in mind - in both terms of good rental potential and capital growth.
Check for proximity to transport facilities, schools, shopping centres, sports and entertainment facilities and areas of future jobs growth.
The property needs to be located in a safe, clean, attractive environment and preferably the area will have an already-established high rental demand.

Step 2 - Buy quality
The quality of the property is crucial.
The building must be appropriate for the market - for example, with at least three bedrooms if located in a family rental area, or with some security if inner-city high-rise.

It should be well-built and have low maintenance buildings and external areas (check that the gardens and any other outdoor areas are in good order).

If it is an apartment, make sure it is large enough to meet the approval of your bank or lending institution.
Irrespective of the type of property you buy, a pre-purchase building inspection and pest inspection is a must.

Step 3 - Gross versus net returns

Long-term capital growth is highly desirable when investing in property, but on a year by year basis you will also receive income in the form of rent. It's useful to understand the difference between your gross return (rent) and your net return (the rent minus your investment expenses).

Some examples of typical investment expenses include interest on the investment loan, rates, insurance, body corporate fees and maintenance.

The net return (or loss) is the figure that helps you to understand how your investment is travelling.

Step 4 - Coping with vacancies

Approximately 30 per cent of Australian households rent, providing a large pool of people who are housed in or looking for rental accommodation.

Nevertheless, you do need to be prepared that your investment property may well be un-rented for a period of time, hence it is important to allow yourself a cash buffer to ensure that you can continue to pay the costs of owning the investment even if you are not receiving rental income. You should calculate on a loss of around 2 per cent of your gross possible returns for each vacant week.

However a well kept, appealing property in good condition and in the right area should not be vacant for long periods.

If you are managing the property yourself and having difficulty finding tenants, you might want to approach some local property management agencies to see if they can help (for a fee, of course).

Step 5 - Triggers for failure

As we mentioned at the outset, if you are making a direct investment in an investment property then the specific property that you choose will have a significant influence on whether you make a good long-term profit or not. Some common triggers for failure include:

• The purchase price was too high.
• The property is in an area of low capital growth potential.
• The maintenance costs are too high.
• The rental income is too low.
• Vacancy periods are too long or too many.
• The loan taken out was structured wrongly.
• Some tax deductions are missed.

Step 6 - Top tips

• Avoid buying a property on impulse; spend time researching the area that you are considering thoroughly before you commit to a purchase.
• Pay for an independent property valuation before you buy.
• Also get independent advice on the sale contract before you sign.
• Remember that interest costs and property-related expenses are tax deductible.
• Speak with your accountant about the issue of depreciation.
• Have a long-term view.

this information was gathered from:

http://www.news.com.au/money/property/investment-property/story-e6frfmd0-1111114663260

For a further discussion on investment properties or to view a range of great blue chip investments please call Deb Brady on 0405 570 903 anytime.

DEB BRDY

0405 570 903