The latest housing finance figures from the Australian Bureau of Statistics show that the value of investment home loans rose by a seasonally adjusted 1.1 per cent to $81.4 billion in April 2013 – suggesting that investor confidence may be rebounding in the property market. And with interest rates currently at 53-year lows, an increasing number of investors may be seriously considering their next property purchase. For investors looking to do so, it will be important to have a smart and effective investment strategy. To this end, I've decided to share the following article by Empire CEO Chris Gray, which appeared in the May 2013 edition of Century 21 Wentworth's Property Investor.
Top ten tips for investing in residential property
Whether for my own portfolio or for clients, I have been searching for, negotiating on and renovating investment properties for almost two decades. Over this period, I have identified a number of rules that I follow to ensure that I get the best returns from any investment.
Whether you are looking to purchase an investment property or add to your portfolio, these tips can help you to make an informed decision:
1.CHOOSE PROPERTY THAT WILL GROW IN VALUE
Well located properties close to the CBD, beaches, schools, public transport and leisure facilities are more likely to grow in value in a good market and to hold their value in a down market.
2. CHOOSE PROPERTY THAT'S ATTRACTIVE TO TENANTS
The property should be clean, have good-sized bedrooms, off-street parking and good positioning away from noise and main roads. You will attract tenants by selecting a property that suits the needs of the majority of residents in the area, and a tenanted property means a reliable income stream.
3. BUY BLUE CHIP
Cheap properties are cheap for a reason - there is little demand and plenty of supply. Generally, it's worth paying market value for a good property in a top suburb rather than paying less for a property that nobody really wants.
4. CREATE INSTANT EQUITY WITH RENOVATIONS
Quick, low-cost renovations such as a paint job, recarpeting, tidying the garden, painting the fence, installing new curtains or blinds, and replacing kitchen cupboard doors, can have a significant impact on the value of your home. For every dollar you spend on renovating, you should aim to get at least one to two dollars back in the value of your property.
5. REFINANCE YOUR PROPERTY TO CREATE A BUFFER
When your property grows in value, refinance to create an emergency 'buffer' zone. This will ensure that you can continue to make mortgage repayments even if you lose your job. Don't find yourself in a forced-sale position as you won't get the best price and it may trigger capital gains taxes as well as other expenses.
6. RE-SIGN YOUR TENANTS
Hire a professional property manager to ensure that you get reliable tenants who pay a good market rent. Consider tying your existing tenant down to a new twelve-month agreement. This will help to guarantee your rental income.
7. GET AN INDEPENDENT VALUATION BEFORE YOU BUY
Many buyers get emotionally involved when buying property and often pay more than the property is worth. By investing a few hundred dollars in an independent valuation, you can almost guarantee that you will never overpay.
8. YOU DON'T HAVE TO SELL TO PROFIT
Many investors believe that they need to sell in order to realise capital growth that they've gained in a property, but this process incurs selling costs, taxes and often re-buying costs. Refinancing, on the other hand, allows you to access the profits, while still keeping the appreciating asset. It works similar to a reverse mortgage.
9. IT'S ALL ABOUT TIME IN THE MARKET
Many people try to wait until the market is at a low before buying. Long-term investors know that timing the market is for speculators, not investors. If you can afford to buy and hold on to your asset, now is always the right time to buy.
Most importantly:
10. BUILD A TEAM OF PROFESSIONAL ADVISORS
You've got to spend money to make money, so rather than trying to find the cheapest advisors, choose the ones that give you the best advice. Spending a bit more money upfront can make a difference of tens of thousands of dollars in the long-term. To start with, every investor needs a good accountant, mortgage broker, financial advisor, valuer, building inspector and buyers' agent.
For more information about the residential property market in your areas of interest, please feel free to stop by your local Century 21 Real Estate office for expert and clear advice. Additionally, if you would like to speak to a mortgage professional about suitable loan packages, please contact Century 21 Home Loans.