Property investment is seen as one of the safest forms of investments and is a top choice for most people who are looking to secure and grow their financial portfolios. However, like any investment, it certainly isn’t risk-free, and should not be considered as such.
But, a thorough assessment of your financial plan, the property and the real estate market, can help you in making an informed decision. This, in turn, could make your investment in property prove to be an incredible asset.
So, what are the essentials you need to consider before investing in property? What are the steps you need to follow? Here’s a quick breakdown:
1. Careful Planning
No good idea comes to fruition without a solid plan to back it up. And every good plan requires a clear goal.
Knowing on the outset what you expect from this investment property, and what your long-term plans for the property are, will help you make decisions towards those goals.
Are you investing with the aim of earning an extra income? Or working towards retirement? Answering these questions will aid you to make decisions towards making that goal a reality.
To make the best possible investment decision you also need to have a clear idea of your budget. This entails understanding exactly what you can afford to put towards your investment.
To work that out, start by calculating your income versus your expenditures. List out any expected future outlays and have some leeway for unforeseen risks or complications. Does this leave you with enough cash for a sizable deposit? Would you be able to afford the additional costs of mortgage and property insurance?
By understanding the budget, its reach, and its limitations, you can research properties that are most suitable to you financially.
2. Consult The Experts
By the experts, we specifically mean:
• Mortgage Brokers
• Property Consultants
Now that you know where you stand economically, consulting an experienced mortgage broker can go a long way in maximising your financial position and can help you to find the ideal type of home loan that is most suitable to your requirements. A mortgage broker would be able to work out the deposit required, and the interest-rates needs that will ensure your continued financial stability and profitability.
Property consultants can then assist you in finding the right type of property to suit your needs and budget. By having access to different property developments and estates, including off-the-plan properties, you can be sure that they would be able to locate the perfect investment property for you.
Property managers are also invaluable in the long-term as they can help you find the right tenants, manage your rental income, and make routine property inspections to ensure your investment property remains in good condition.
By consulting the experts, and allowing them to work in tandem with each other, you can find the perfect property for the perfect price.
3. Research, Research, Research
As with anything to do with real estate, a detailed and comprehensive research is essential before making any investment decision. This could very well make the difference between a successful investment and an unprofitable one.
Your research should take into account your finances, property value, location, average rental income, and market trends.
Once you have assessed your finances and have an investment property in mind, look into the value of the property itself. Some inquiries you can make include:
• Is the property in good condition? Is it easy to manage? Is it appealing to prospective tenants? Are there any repairs or renovations to be done?
• What are the amenities available in close proximity? What type of tenant would be most suitable for this locality and neighbourhood?
• What is the average rental income in this neighbourhood?
• Are there any new developments proposed by the council in the area? Would these developments hinder or help my rental income?
• What are the predicted market trends in real estate for this region?
Speaking with local residents, contacting the local council, and consulting other property investors, can give you the information you require to make the best investment decision for you.
4. Do the Due Diligence
Once you have gathered all the necessary information, but before signing on any dotted lines, an important step in real estate investment is ensuring that all the documentation, contracts, and legal requirements are in order.
Employing the services of a licensed conveyancer could prove to be highly beneficial at this stage. Not only does this protect the interests of everyone involved, but it also guarantees a smooth and secure transaction of assets.
5. Explore the Tax Implications
Real estate investments are incredibly popular not only because of the cash flow they could potentially generate, but also due to the enticing tax benefits they create. Investors can take advantage of these through a myriad of perks such as tax deductions, depreciation, and negative gearing.
• Tax deductions- Tax deductions can be applied to the mortgage interest, as well as any expenses that go toward managing and maintaining the property. These could include repairs, property taxes, insurance, legal fees, and utilities. These could also include payments made to property managers, surveyors, and conveyancers for their services.
• Depreciation- Depreciation allows investors to take into account the gradual loss of a property’s value due to general wear and tear, and deduct it as an expense from their taxes. Depreciation is also applicable to the loss in the value of equipment, such as dishwashers and stoves, that come with the property. This allows you to reduce your taxable income and even decrease your tax liability.
• Negative Gearing- Negative gearing refers to a situation in which the income generated from your investment property is less than the expenses of the investment. The rental loss incurred can be balanced against other income earned. This is only applicable if you have another taxable source of income. This results in reducing your taxable income, leading to tax benefits and savings in the long run.
6. Establish Good Credit
It may seem like a no-brainer, but to avail the best possible home loan option, it is crucial to establish good credit. Your credit score is a representation of your fiscal responsibility and one of the key factors that lenders take into consideration when reviewing loan applications.
A high credit score allows you to secure better interest rates on your mortgage enabling you to save money on interest payments.
Establishing good credit entails:
• Paying bills on time
• Making loan payments on time
• Maintaining a low credit balance
• Maintaining long-term credit accounts
All these factors enable you sustain a low debt-to-income ratio which boosts your credit score.
7. Utilise Your Equity
Equity is the value of your home that you actually own. It is the difference between the amount of money owed on your mortgage and what your home or property is currently worth. For instance, if your home is worth $500,000 and you owe $300,000 on your mortgage loan, you have $200,000 worth of equity.
Equity can be utilised by borrowing against it to purchase an investment property. This helps to reserve your cash flow, as well as increase your borrowing power. This will also increase your tax deductions.
Investing in property is a smart way to secure and grow your finances, and there are numerous options available to help you get started. But no matter the type of property you choose to invest in, certain key steps and considerations must be taken into account to maximise your success.
Comprehensive planning, diligent research, and consulting the relevant experts are some of the vital elements of property investment that enables you to invest securely, minimising your risks, and helps you to get the best possible returns on your investment.
If you are looking to protect and grow your financial portfolio through property investment, get in touch with our team at Deanside Central. Our experienced team of incredible property agents can guide you through each step of your investments and create unique strategies that maximise your returns.