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2018-12-11 Building & Buying
Author: Satterley

14 smart property investment tips

Property is an excellent investment. In fact, CoreLogic's Profile of the Australian Residential Property Investor report found that, as an asset, real estate is worth more than both Australian superannuation and listed stocks.

So, today we're going to cover smart property investment tips to help you get started in this massive industry. Specifically, we'll cover investing in land - one of the best real estate investments a person can make. How do you become a smart property investor? Let's cover the key pillars: strategy, finance and good research.

 

Objective and strategy

  1. Set a clear goal

Are you investing to build a retirement fund? Accumulate wealth? To generate passive income? Set a clear goal, as this will define what land is right for you. For example, this might be investing for long-term capital growth, or building to sell for profit.

  1. Set emotion aside

When you're looking at a lot or a community, set your emotions aside. A smart property investor sees the numbers - great yields, high growth (both of which we cover shortly), and so on - and then compares those to their primary goal to determine whether an investment is right or not.

Before taking any further steps, seek professional property investment advice.

 

Finance

  1. Seek professional advice

Before taking any further steps, seek professional property investment advice. Tell your adviser your situation and your goals so they can help you work through the following steps smartly, quickly and safely.

  1. Know your lifetime costs

Common lifetime costs associated with land investment include:

  • Council and water rates.
  • Insurance, including landlord insurance.
  • Land tax.
  • Property management fees (if applicable).
  • Income tax - you may have to pay increased tax if you earn income through your property.
  • Maintenance costs.
  • Vacancies  - any period your home is unoccupied is time you aren't earning rent to cover the costs.
  • Advertising fees - to find tenants.
  • Letting fees (if applicable).
  1. Check if assistance is available

While the First Home Owners Grant and First Home Super Saver Scheme are common ways Australians finance their new homes, these are not available to investors. In WA, Keystart loans are also not available. That said, you may be able to use the equity on your existing property to fund your new one, or a guarantor may help secure your next deposit. Talk to your financial professional about both of these options to see if they apply to you.

Unlocking your existing home's equity by refinancing your mortgage is one way to afford investing in new land.

  1. Know your borrowing power

You need to plan out a few key things before borrowing:

  • Your ideal loan structure - think variable versus fixed interest rates.
  • How much you need to save for a deposit - or whether you can use your existing home's equity for this purpose.
  • How much you are allowed to borrow.
  1. Plan for risks

Financial risks could include natural disasters, unexpected maintenance, prolonged vacancies, and similar, sudden expenses. Building a buffer for these into your budget could save you defaulting on your loan in the event that your property becomes 'negatively geared' (earns less than you spend).

  1. Get pre-approval

Loan pre-approval lets you move faster when searching for a property. For instance, it could help you buy the perfect piece of land in a highly popular new community before your preferred lot is gone.

 

Research

  1. Seek advice

Before searching for your land investment seek professional real estate advice. A real estate agent can help you understand the market more clearly, and help you choose a sensible property in the right community.

Buying land in a growing community could lead to capital gains in the future

  1. Find growth areas

Buying land in a growing community could lead to capital gains in the future, whereby the value of your land and home increase over time. You can then sell for profit later. Talk to your real estate agent or estate manager to understand whether your preferred community is growing.

  1. Find areas of high yield

Rental yield is the amount you will earn each year through your tenants. A perfect storm for investors is an area of high popularity but low vacancy rates - that way demand exceeds supply, and rental yields may increase. You can use free reports from realestate.com.au and Residex to gauge rental yields in an area, or you can talk to your real estate agent.

Some developers also gain high rental yields by purchasing leaseback lots. This is when the developer sells a lot then leases it off the buyer, typically for use as a display home. These properties often have higher rental yields than the area average, although there are potential drawbacks that must be researched before purchasing.

  1. Think about your tenants

The more appealing your home and community, the easier it will be to find tenants. The most important amenities to Australians, according to a Satterley customer survey, are:

  • Shops.
  • Parks and playgrounds.
  • Medical facilities.
  • Transport links.
  • Schools.
  1. Look at future developments

If ideal amenities aren't present right now, check in with the council, your real estate agent or your community estate manager to determine what is planned or in development. Prices may increase as an area becomes developed, leading to capital gains in the future.

  1. Be wary of 'hot spots'

Property 'hot spots' are areas where there is expected high growth. Be cautious when approaching a hot spot. Some are caused by price spikes due to newly developed amenities and accompanying market buzz, but when the boom ends this spike may not have been representative of actual capital gains, resulting in a loss. That said, sometimes hot spots are perfect investments - you just need to get advice first.

Ready to take the next step? Learn more about investing in some of Australia's most popular communities by checking out our land for sale today.

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