Updated: Jan 27
Investing in the property market can provide many ways in which to profit, but it can also be fraught with information overload.
Buying an investment property can often place a homeowner on unfamiliar ground, and that’s even if they’ve purchased a home in the past.
Unlike your primary place of residence, an investment can provide you with a steady rental income over time in addition to the rewards that come with capital growth – and it’s not to forget that there are a plethora of ways in which to invest in the market and turn over a profit.
There are a few rules savvy investors should follow for success.
Should I invest? Investing isn’t right for every one.The first thing you need to do is make sure you’re in the right financial position to take the risk.
How do I build a strategy? Before you start your journey you need to do plenty of research and build a strategy around your specific budget and financial needs.
How do I choose the right loan? Once you get your finances in order, start shopping around for a great loan. Use a mortgage broker to find you the best rates and make sure you get pre-approval from your lender before you start looking for your investment property.
How will I manage my investment? It’s important to remember that an investment property is a long term commitment and you need to know how you are going to manage it over the life of your loan.
Being financially prepared for when the tables turn can help to minimize some of the potential risks that are often served to an investor in an everchanging market.
It’s easy to fall into the trap of poor cash flow management as a beginning property investor.
Understanding all of the costs involved in acquiring and holding property can be difficult and you should always seek the advice of a professional accountant who knows about real estate investment to ensure you know exactly what you’re getting into financially.
Don’t forget to account for any contingencies, such as extended vacancy periods or unexpected maintenance costs.
A good rule of thumb is to allow about 10% of the property’s value for costs such as rates, land taxes, insurance, maintenance, and management fees.
"Did you know: As an asset class, the Australian real estate market is worth over $6.5 trillion? That’s three times more than all of the superannuation funds across the country combined, and more than four times the value of all Australian listed stocks" (Source: CoreLogic, 2016)
Finding the right investment property?
Finding the right property for sale is a crucial part of successful real estate investing.
Once you've determined a budget, you can narrow down your search to particular suburbs which meet your investment objectives. These are generally properties that will have the greatest potential for capital growth and rental return.
In terms of specific criteria to identify, and bearing in mind the demographic you're looking to attract, the suburb should have:
Properties that are in high demand from tenants
Good access to public transport
A wide range of public amenities, including shops, schools and leisure facilities
Access to employment opportunities or be within close proximity to these
Some key indicators to keep an eye on include:
Property Values & Days on Market
Monitoring the market is a key part of any successful property investment strategy. Your first step should be to identify what market data or performance metrics to track. The trend of property values, and if it is rising, flat or falling. Here, suburb sales data can help you identify which postcodes are posting high growth rates. If values are rising fast you could have identified a boom suburb.
If properties are selling quickly, then a short days on market (DOM) metric is a good sign that a market is hot. However, you’ll need to know the market, as this figure can vary depending on location.
Rising rental yields, which are calculated using rental income as a proportion of a property's value, are a good sign that there is strong demand for rental accomodation.
Auction Clearance Rates
Auction clearance rates are the percentage of the total number of properties sold over a week or month. Anything over 70 per cent is likely to indicate a hot market, though this will often depend on the local area.
Vacancy rates tell you how long a property remains vacant for, so be on the look out for falling or low rates in areas with high demand for rental properties.
You can also use a number of other factors to find an area that is on the up. Seasoned property investors look for suburbs or areas with:
A rapidly growing population, which is going to drive demand for your property
A vibrant and diverse local economy with a range of employment opportunities
Investment going into local infrastructure, including new transport links, amenities and local services
Median household income that is higher than inflation
Low housing supply/high demand from buyers.
You should also take into account areas with the potential for growth in the next three to seven years.
With the right advice and loan, property investment can be the most satisfying and profitable decision you make. If you have any questions or want to discuss whether property investment is right for you, contact our team on 02 8313 8400.
*Information within this publication has been sourced from OpenAgent and Property Update.