Whether you area first time home buyer or a seasoned property investor, it is always good to be reminded of smart property investment principles, particularly in today’s residential property market where affordable investment opportunities appear to be on the increase.
Given such, I have decided to share with you the following piece provided by our very own CENTURY 21 Chairman, Charles Tarbey, which appeared in the June edition of CENTURY 21 Wentworth’s Property Investor
Five Tips for finding (and structuring) the perfect investment property
By Charles Tarbey, Chairman of Century 21 Australasia
With Westpac predicting the cash rate could reach 2.75 per cent by the end of this year, turbulent market conditions and numerous property opportunities to choose from, many real estate investors are assessing what and where their next property purchase will be.
Given that the market is awash with opportunities, promotions and complexity, I like to constantly remind myself of some of the property investing fundamentals before delving into any new opportunity:
1. It all starts with finance;
Before scouring the market for opportunities, it is worthwhile to firstly define how much debt you have access to, at what price and whether servicing that debt is within your means.
This process usually starts by speaking to a mortgage broker. Not only are they typically best placed to suggest how much debt you have access to, they can often also secure you the best terms for your finance and structure the debt in the optimal manner for your portfolio.
In many cases investors will have greater access to finance than what they originally thought. By defining this range with a broker from the outset, investors may have an advantage when searching and competing in the market, as properties they never thought would sit in their price range, now do. However, it is always worthwhile to ensure that any new finance arrangement can be adequately serviced with a strong margin of safety in any new opportunity;
2. Develop a relationship with your local real estate agent;
Real estate agents ‘live and breathe’ property; building and maintaining a relationship with an expert agent can often be very rewarding.
Once the agent knows what an investor is looking for, they can act on that information and inform the individual of attractive properties as they arise. This process often sees investors snap-up prized investments efficiently and at competitive prices.
3. Buy during favourable market conditions;
Like investors across most asset classes, property investors try to purchase property while markets are depressed in order to receive strong returns as markets recover.
Picking the floor is always a difficult activity but identifying favourable market conditions is relatively straight forward. At present, investors can secure relatively cheap finance (with more interest rate cuts likely); there are strong stock levels on the market and with dwelling values either stagnant or depressed of late, purchases are hardly being made in a ‘bull market’.
These factors combined with Australia’s strong economic fundamentals, well capitalised banks and ongoing mining activity, suggest that conditions are favourable for strategic property investments at present.
While each investment locale should be assessed on its own merit, identifying favourable market conditions gives investors an improved chance to secure the property they want, at the price they want – and with the best chance of strong future capital growth.
4. Location, Location, Location;
While a landlord can renovate a house to make it more attractive to tenants, the house itself can never be moved to a separate suburb – making the ‘location, location, location’ adage as true today as it was when it was first said.
With this in mind, it’s always useful to not only assess the location’s merit today but also its likely merit in the future. Proximity to schools, transport hubs and shopping centers are all key factors to throw into this matrix.
There is always much commentary around how major infrastructure projects will add future value to a location, but in some instances these projects can actually detract from a location.
With major infrastructure projects on the cards for nearly all states in Australia, it’s worthwhile assessing whether a planned infrastructure project will benefit or detract from a potential investment. Rail lines or freeways may increase the value of a suburb but if your property is close enough to them or the project work, the noise may be unattractive for both tenants and buyers alike.
Assessing the attractiveness of a location both now and in the future, will help increase the chance that any investment will deliver strong yields and capital returns in both the short and long term.
5. Look beyond your horizon for opportunities;
While there are obvious advantages of investing into a known local area, it’s often worthwhile to assess the prospects of investments further a field in the quest to secure higher yields and capital returns.
Whether it’s apartments with depressed values on the Gold Coast or booming mining regions, there are a vast number of opportunities that exist for property investors in the current market.
When assessing these locales it’s worthwhile speaking to a number of local agents and inspecting many properties in order to get familiar with the area and its property market. Market research from companies like RP Data can also prove invaluable.
Assuming the area’s fundamentals are strong, it may be a lucrative exercise to compare the opportunity further afield, to the one closer to home.