Perth, for example, is now a property investors’ paradise, with many properties located within a 20- kilometre radius of the CBD and listed for sale for under $500,000. This is around half the median house price of Sydney. Properties in these competitively priced capital cities offer a low-risk entry into the property market with the potential for capital growth.
It is especially important that first-time investors take a conservative approach to their property investment purchase and focus on buying an investment property for under $500,000.
Too many first-time investors over-expose themselves financially by purchasing an expensive investment property which can limit their ability to buy multiple properties. This is particularly the case if they purchase an expensive property in the wrong location, potentially resulting in a financial nightmare.
In contrast, buying a lower-priced property that has the potential for strong capital growth can be an important building block to establishing a successful property portfolio.
Lower-priced properties also tend to have higher rental returns and this factor is important during a climate of rising interest rates, with the major banks increasing interest rates for investors over recent months.
Issues you should consider when buying a lower-priced property include:
- Spend time researching all aspects of the property market before even looking for an investment property. Issues, such as negative or positive gearing, rental returns and depreciation have to be considered by a first-time property investor;
- Past trends in property values are generally an indication of future trends and it is wise to examine the long-term capital growth rates of the suburb;
- Take a broad approach to buying an investment property. Most first-time property investors buy a property in their local neighbourhood because they are familiar with the area. By taking a narrow approach to the location of the investment property, first-time investors severely limit their options;
- Try to target suburbs in lower-priced areas which have a higher number of properties for sale;
- When you have selected a suburb, don’t make an emotional decision when choosing a specific home. Most first-time investors purchase a property they would like to live in. It is important to remember that the investment property must appeal to a tenant who will be paying the rent;
- Check out any planning changes proposed for the suburb. Many local governments are undertaking reviews of zoning which could have a major impact on property values. For example, a property that was purchased for a single residential use and rezoned by the local council as a triplex site will increase substantially in value. The planning department of a local government can advise first-time investors of any proposed zoning changes;
- Check out any planned infrastructure changes for an area you are interested in buying. For example, an upgrade of a local shopping centre or plans for a new railway station can have a major impact on local property values;
- Make sure that there are tenants prepared to rent your property. Rental income is a key factor in serving the loan so if you cannot find a tenant, you will have problems keeping the investment property over the longer term; and
- Check your finances before you consider buying an investment property. If you have pre-approval finance, it will allow you to move more quickly to secure the right investment property.
About the Blogger
Paul Bennion is the managing director of DEPPRO tax depreciation specialists.
DEPPRO Pty Ltd is Australia’s leading property depreciation company, specialising solely in the preparation of tax depreciation reports for residential, commercial, industrial and leisure investment properties.