Investing in property for beginners
Don't invest in property before asking yourself these 3 important questions.
Have you heard it can be surprisingly low-cost to purchase an investment property ?
Well, that's often the case, so why do the majority of Australian property investors stop at just property ?
Before you jump in, ask yourself these three questions.
What return do I expect from the property ?
Mistake number one that many people make, is investing in property because they believe it is the right thing to do without any real basis for that belief. Friends may have done it or they may see or hear ads promoting property as a safe and secure investment. Whilst it's true property can be a great tool to create wealth and has worked for many, including most of the wealthiest in our country, you need to base your decision on more than a hunch and understand what sort of return you can expect.
When assessing the potential return you need to understand the likely capital growth (increase in the property value) PLUS the expected rental return and any potential tax deductions. Don't just focus on one or the other, focus on ALL of them.
Then you need to take into consideration all of the costs of the property. Purchase costs like stamp duty and loan fees as well as interest on the loan, taxes and rates, potential body corporate fees and possible maintenance costs.
But why is this important? Now to question two.
Is this return better than my other options ?
If you are paying off a home loan would you be better off focusing on paying that off ? A dollar saved in interest is as good as a dollar made (sometimes it's even better). Or what about investing in shares they can pay some attractive dividends (dividends are like the rental income on a property)?
Whilst a Financial Advisor may be best qualified to help you weigh up your options, it makes sense to understand the basics yourself because no one is as invested in your money as you!
Once you have the answer to this question then its time to ask;
How much can I (or am I willing !) to contribute to the loan repayments ?
There is no point investing in anything if it's going to keep you awake at night, but sometimes we also need to push ourselves out of our comfort zone.
It is common for the costs associated with properties in well performing areas to be greater than the income so you need to understand what you can afford to contribute from your wages.
We call it "knowing your numbers" and when working out whether you can afford an investment property, it's best to work out what you can afford based on your actual numbers, not what the bank says.
If you have a mortgage, have you been able to pay more than the minimum? If so you could direct that amount to the investment property. If not would you be disciplined enough to tighten your belt?
You also need to make sure you take into consideration any potential movements in interest rates as well.
At FinancePath we provide our clients with access to all the reports and numbers they need to make an informed decision that is best for them not the bank.
Don't see your question answered? Contact us today to find out more about property investment.
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