Many of us thinking about building wealth may be considering investing in property.
2010 is shaping up to be a good year for potential property investors who might be considering taking the plunge.
There are plenty of advantages associated with investing in property including the potential for capital growth, rental income and tax benefits.
But there are risks that come along including finding quality tenants, earning the rental income you need and meeting the costs for maintenance and repairs. And of course capital growth is not guaranteed.
Have a plan
If you’re confident that property investing is right for you then you need to have a plan. Start by working out how much you can afford.
If the investment property is your first foray into property you’ll need to have saved enough money for a deposit as well as any additional costs such as stamp duty, legal fees and inspections.
If you want to avoid mortgage insurance you’ll need to have at least 20%. If you’re willing to pay mortgage insurance it may be possible to borrow up to 90% or more.
If you already own your own home and have built up equity you can use this to help pay for your investment. You can use this equity towards the 20% deposit and then get a separate loan for the remainder.
Monthly payments
You’ll also need to make sure you can afford the monthly repayments. Of course rental income is taken into account, but be realistic about the level of rent you’re likely to receive.
You’ll also need to consider there may be times when the property is without tenants.
Choose the location
Once you have worked out your budget it’s time to go on the hunt for a suitable location.
As a general rule look for areas that are close to amenities like public transport, schools and shops. Also focus on areas that are within commutable distance to commercial centres where lots of people work.
Choose the property
Once you’ve narrowed down the areas you’re interested in you can look for appropriate properties. Think about likely tenants. If it’s close to universities or an area that appeals to young professionals a unit might be a good option. If it’s an area full of young families a house with a nice backyard might be a better bet.
Whether you choose a house or unit the kitchen and bathroom are probably the two most important features. Built-in storage is also a big plus. Just make sure the property is neat, tidy and has the features that will appeal to your target market.
Make sure you do your due diligence before going ahead with the purchase. Do the relevant building and pest inspections. Also make sure you do your homework on the value of the property to ensure you don’t pay too much.
Managing the property
Once you go ahead and make the purchase you need to determine whether you want to be a ‘hands on’ landlord or pay a professional agent to do the work for you.
They’ll generally charge about 7% to 9% of gross rent to screen potential tenants, collect rent and organise repairs. They’ll also carry out regular inspection.
Take out insurance
Finally, make sure you have the appropriate insurance in place including building insurance. You could also consider landlord protection insurance.
No tags