Property investment is one of the most powerful wealth generation strategies you can adopt – but you need to know what to look for
There is good reason why real estate remains a firm favourite investment amongst Australians.
It is an asset class that everyone understands and while there are no guarantees that every property has the potential to deliver returns, history has shown that many properties appreciate in value over time.
To maximise your chances of success in property investment, you need to develop an extensive understanding of the real estate market and a clearly defined investment strategy and action plan.
You should therefore consider the following before making any investment decisions.
Capital growth is often considered a property’s most important return. After all, the value of an appreciating asset speaks for itself.
Historically, Australian house prices generally have tended to double every seven to 10 years, and while growth in real estate has slowed in recent times, property is still considered an attractive investment strategy.
Carefully selected property can continue to offer long-term capital growth, but it pays to know what will impact the potential growth of your investment to ensure you make an informed choice.
Location is one of the biggest influences on a property’s long-term growth prospects and you should look for a location where demand for property is increasing.
Proximity to amenities such as transport hubs, schools, hospitals and shopping centres will boost the capital growth potential of your investment. Also, consider economic variables such as local employment figures and population growth, as well as any future developments – such as new industry – that might influence local demand.
If it is cash flow you are after, you will want to look for a property that carries a rental return that outweighs the cost of your home loan together with the cost of holding the property.
Essentially, the greater the rental value of the property as a percentage of the overall price, the higher the rental ‘yield’ and the closer you’ll come to a cash positive investment.
Inner city units or apartments can offer investors good returns – and in the right location there can be significant demand, leading to solid rental value growth.
But while units are popular, houses in some suburban locations can also offer great cash flow opportunities. Typically, lower price point houses that are within reasonable proximity to key employment centres offer prospects for investors looking for high rental returns.
Your investment’s rental return potential will be greatly affected by the vacancy rate of the local market. Be sure to purchase a home or unit in an area that traditionally carries a tight rental vacancy rate to ensure there will likely be long-term demand for your property.
Know Your Limits
There’s no greater threat to successful property investment than over-stepping your financial boundaries.
Buying beyond your means may lead to increased financial strain further down the track – and much more serious consequences, for example, if your lender raises its interest rates. That’s why professional advice at this stage is crucial.
Also, when it comes to selecting your investment property, you’ll need to choose based on the numbers, not just the features of the property.
Consider how much you should receive in weekly rental payments and compare this to the costs of your mortgage repayments and other expenses. You will also need to factor in making loan repayments when the rental property is vacant.
If the property looks too expensive to maintain, it is probably a wise idea to keep looking.
A Choice Home Loans broker can help you asses your current financial situation – including what you can realistically afford to spend – and provide guidance on what you should be looking for as an investment
Moreover, a Home Loan broker can provide you with a range of home loan products from Australia’s leading lenders to ensure you have access to the most affordable options available.