What to Consider Before Investing in Property

This is a good lead-in to the next question:

How much time do I have?

Starting an investment portfolio at age thirty is a different proposition to starting one at fifty. While at thirty you may have more time (and may be possibly open to more risk being younger), you generally earn less and have few assets, so your borrowing capacity will be less, however, time is on your side, and younger people can be less risk-averse.

The later you start investing,  the more risk you may have to tolerate in order to achieve your goals.

What is my budget?

Depending on your age and what stage of your life you are at, your budget may initially be modest (especially if you are buying your first investment property). You will also be limited by the equity you have in any existing properties, the amount of debt you hold, and other ongoing expenses.

The cost of an investment property doesn’t begin and end with the purchase price. You should also factor in stamp duty, legal costs, lender’s mortgage insurance, a building inspections, and the ongoing maintenance, cleaning and repair costs that come with being a landlord (link to blog on being a landlord).

Investors should factor in having to pay the mortgage on their investment property during periods when the property is untenanted, and should be able to absorb rises in the mortgage repayments if interest rates go up.

Before you start looking, sit down and work out your budget for a property, factoring in all the associated expenses, such as stamp duty, conveyancing fees, building and pest inspections, lender’s mortgage insurance and cleaning or renovation costs. It’s also a good idea to budget for repair and maintenance costs, rises in interest rates and any period where the property may be untenanted, in your budget.

How am I going to go about it?

What kind of property will you buy and how will you go about finding it?

There is a lot of information available to anyone who is investigating an area for an investment property.

Think about the areas you might like to live in – these are the areas that your potential tenants would also choose. Can you afford to buy in these areas?

A good investment property is in an area that will experience capital growth, with good access to transport, schools, sports facilities and other local amenities and ideally an existing property, as these tend to experience better capital growth than brand new or off-the-plan properties (in particular, apartments in big blocks).

Areas close to the CBD of our major cities, with good lifestyle and entertainment options, where families and professional couples are moving in are a good bet.

If you are not sure about the best place to buy, or will be buying in an area you don’t know, consider using the services of buyer’s agent or buyer’s advocate.

This leads to another important question – what kind of property to buy? Will you buy a house or a smaller property such as a unit or apartment. Will you buy it by yourself or in tandem with someone else?

Buying in an area you are not familiar with can have pitfalls, so make sure you have done enough research before you sign anything.

There is also the option of buying a block of land and building the property yourself. Keep in mind you will need a substantial budget for this option

What Type of Property?