What To Consider Before Your First Investment

As a first-time investor purchasing property you need to remind yourself, you’re not buying for you, so you don’t have restrictions on the type of property to purchase says Frank Valentic from Advantage Property Consulting.

We have many first-time investors seeking advice on purchasing an investment property. What’s the first thing I say to them? Buying an investment property is very different to home-hunting for yourself.

The aim of an investment property is to appreciate over the long term so that you can grow your wealth. As well as attracting renters, so as to ensure the property is leased out and can contribute to your mortgage costs.

There’s several factors which can help you achieve these objectives, so here’s my quick go-to checklist for selecting the right investment property.

Location

Many first-time investors often look in areas or properties that they would like to live in. However, the location of your property shouldn’t be your personal preference, but somewhere that will generate strong returns. For instance, a property with several amenities, like public transport, shops, parks or a beach on its doorstep will be far more appealing for renters than those without.

Think about school zones too – families who cannot afford to buy in school zones will rent in the area. Properties near universities will also be snatched up quickly by students looking to rent close to their studies.

Keep in mind that the location will impact the cost of your property. Obviously, some areas in the inner city – say Surry Hills in Sydney or Fitzroy in Melbourne – will deliver you strong rental returns as they’re in demand areas. However, the median house prices in these suburbs are well above $1 million, which can make it tricky for an investor managing cash flow.

My tip is to look at the ‘middle ring’ suburbs 10 to 20 km from the city. These areas come in at a lower price point but are also within close range of amenities, transport and schools, so the rental potential is greater.

Room for improvement

Buyers often look for homes which don’t require much work, but if you want to add value as an investor, you should consider a property that is bit run down and you can improve the value through renovations.

Renovations do not always have to be costly. Some simple handy work like painting, carpeting, replacing outdated light fittings and wet areas can add tens of thousands of dollars to your market value. This can also help add equity to your investment to assist you with your next purchase.

My tip for renovating is to develop a budget and stick to it. Source as many quotes as possible when developing the budget, so that you are fully aware of the cost and don’t have any surprises when the invoices start coming in.

Supply and Demand

As is the case in most commercial markets, the greater the availability of similar properties in the market, the lower the value. So, choose properties which have unique features to help your property stand out amongst the rest.

Many inner Melbourne suburbs are experiencing a high volume of apartment developments which gives tenants and buyers the power of choice. If you are buying in an area with a high number of high rise one bedroom apartments, consider a more boutique building, something spacious with outdoor areas and car parking.

Equally, if you are investing in an area with a high number of family homes, look at the availability of smaller properties such as single level villa units as these are ideal for downsizers or younger residents who still want to stay within the area.

Keep reminding yourself, you’re not buying for you, so you don’t have restrictions on the type of property to purchase.

The Costs

Before jumping into the market, you should always do a budget of all your costs. Many investors consider the expenses relating to purchasing an investment, like the deposit and mortgage repayments, but fail to remember the other fees needed.

Remember to account for stamp duty, conveyancer fees, ongoing payment of outgoings such as the rates or owner’s corporation fees, land tax, property management fees and capital gains tax when the time comes to sell.

Before investing, you should also consider your own financial situation and if it is of more benefit for you to be positively or negatively geared. Some people prefer to be negatively geared so they can receive a tax break, while others prefer to be positively geared so they aren’t out of pocket.

Investors who have not accurately calculated their cashflow are dependent on their rental each month to pay their mortgage and cannot afford to maintain the property. If you do not attend to maintenance and do some basic upgrades each few years, your property will start to look tired and you will start to attract the type of tenants who don’t respect your property. You need to ensure you have a small buffer available to draw on should your tenant be late in paying their rental or you have some maintenance items that are urgent.

About Frank Valentic

Frank Valentic is the founder of independent buyer’s advocacy service, Advantage Property Consulting. Over its 17 years of operation, Advantage has expanded its service offerings to include property management, vendor’s advocacy, owner’s corporation, group block purchases and investment seminars, having bought and sold for over 2000 clients.

Original article here: http://www.apimagazine.com.au/property-investment/what-to-consider-before-your-first-investment