Property Investment is one of the cornerstones to creating wealth and most Australians aspire to achieve that goal. Buying property using an investment property company is deceptively easy but avoiding the traps is something all Australian property investors need to know.
Follow along as we explain effective property investment in today’s market.
You may have heard the phrase “location, location, location” used whenever property investment is being discussed. In a broad sense that still holds true today.
But can you define what location actually means?
Most people I’m sure will say close to schools, shops and public transport without blinking an eye. But how close is close? Is one kilometre ok or should it be less…or more? How far is close enough when a shop is involved? Is walking distance acceptable or maybe a ten minute drive in the car? Close to public transport could mean having a property that is next to a railway line couldn’t it?
The reason we bring these points to your attention is to demonstrate that while a broad generalisation is fine in context, it can be misleading when it’s applied to real life.
The other issue is that if we accept that location is the only guideline for successful property investment we are therefore also saying that anything that isn’t in the perfect position is not worthy of investment. An assumption like that is surely limiting your ability to build a healthy and dynamic property portfolio.
Clearly then, the definition has to be more detailed to be effective and more importantly, it has to match up to your own circumstances.
One undeniable truth is Property investment is ruled by money. That’s probably no surprise because it’s pretty obvious you need your own money and somebody else’s money to be able to buy property given the current prices. However the availability of money also forms an integral part of your investment strategy.
Let’s put it this way:
The amount of money you can access relates directly to the geographical area you can buy into.
Based on this simple understanding it’s clear that the concept of location is not going to be the only criteria to judge a property. Price constraints will naturally mean some compromise is necessary.
Which brings us to the First Rule of Effective Property Investment.
Experienced property investors have already worked out that being able to access money is the most important part of investing in property. The more money you have the more options are open to you. Buying a property you can afford means you can afford the repayments and the outgoings such as rates, insurance etc. Staying within your budget keeps any unforeseen expenses manageable while any natural increases in your income, outside of the rent, can help to reduce debt or increase savings. The more reserve funds you have, the better your experience of property investment will be.
Let’s move on to the Second Rule of Effective Property Investment.
Property investment is about making money. Initially the rent from the property will be used to help service the debt and in the longer term, help pay it off. Therefore you want rent that is steady and sustainable. It’s helpful to know that your income is not going to be required to meet the repayments for the next 30 years. It’s also preferable to avoid properties with large variances in rental income such as Holiday rentals, managed apartments or serviced apartments as they lack the reliability of ongoing rental. Residential property has a reputation for stable, reliable income so a methodical approach to building a portfolio is possible.
Last but not least, let’s consider the Third Rule for Effective Property Investment.
Suitable for purpose
A property for rent should always be suitable for the market in which it is intended. Make sure your property is similar to all the others around it. For example if the area you are looking at is made up of mainly 4 bedroom standalone houses, you should have a 4 bedroom standalone house. People are attracted to an area for a reason and your property should be similar to all the others in that area. Unlike owner occupied houses, your investment property should be easy to maintain, inside and out, if you want happy tenants.
By the way, there is an easy way to cut through all of the confusing stuff.
Find an expert
Find someone who can provide property investment advice that you can understand and apply because advice is only useful if you can apply it. Property Investment Advisers should have access to a variety of properties to suit your circumstances so be careful if only one type is on offer such as OTP high-rise apartments.
The best property investment companies and property investment consultants should be able to provide you with property investments that meet the Three Rules.
Don’t throw out Location, Location, Location just yet but feel free to add Affordable, Reliable and Suitable to your list so you can purchase with confidence.
For a personal consultation contact one of our Property Advisors today.