The big question is: how do you know when to buy an investment property or whether it is the right move for you? Buying an investment property is a huge commitment, so it’s not a decision you want to rush into.
Here are a few things to consider before jumping in head first:
Can you afford it (and we mean really afford it)?
It could be a renovator’s dream or the deal of the century but if you’re going to be pushed to make the repayments, ask yourself: is it the right investment for you?
As well as the cost of the property, remember there are other expenses involved (like stamp duty, legal fees and building reports) as well the ongoing maintenance costs (like interest repayments, property management, council and water rates).
Also, while the long-term capital growth of a property can make it a smart investment, adjusting your lifestyle to accommodate your repayments may initially be stressful. To make sure you don’t over-invest, do a thorough number crunch and consider giving yourself a buffer to allow for any surprise expenses (let’s face it, they’re going to happen whether we like it or not).
Do your homework
Everyone tells you how important it’s to get on the property ladder but don’t just assume that securing any property in any location is a smart investment. Some areas even have the ability to lose you money. When you’re looking, experts will advise you to choose a location that has a history of strong capital growth – but if you’re not familiar with the property market, it may be helpful to enlist the help of a professional.
Remember, you’re also looking for something that’s rentable, not your dream abode. This means you’re better off choosing a property with broad appeal, rather than something that floats your particular boat – this could make it easier to rent it out.
Another thing that’s worth looking into is whether you can add value to a property through renovation or redevelopment. If people are starting to ‘do up’ houses in an area (but there are still plenty of original ‘ugly ducklings’) this could indicate good investment potential.
Expect the unexpected
Set-backs are a reality – they happen. That’s exactly why it’s recommended to have a buffer factored into your budget. Don’t kid yourself by thinking once you’ve secured your investment, you can just sit back and watch the value climb. Unexpected things do happen like tenants moving out and strata levies going up. You should always have a plan for set-backs, so you can access the cash to get you through.
It’s a marathon not a sprint
When it comes to property investment, having a long term strategy will set you up for success. Investments properties aren’t a quick win get rich tactic. You need to be committed and hang in there. So, the moral of the story here is: if you want to come out on top, you should be prepared to play the long game and be able to hang onto your investment for ten years or more.
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