Even in the current property boom, plenty of us are looking at getting our foot in the property door and it is easy to understand why. Some of us are even questioning is there really a property boom. Purchasing property to rent out is still the most popular way to build up assets because it is seen as a safer option than many other types of investment. However, it is a major decision, which requires planning, research and careful budgeting.
The good news is that property can be a potent wealth builder over the long term, and like any investment it experiences cycles. So is NOW a good time to buy in? It depends on your goals. Here’s 5 STEPS you can apply to property investing that will pay off.
1. TIME FRAME
Knowing when to jump in really depends on your investment time frame. Property is an investment with at least a 7+ year horizon. Transaction costs to buy and sell are around 9 per cent, which means you have to make that back before you get the benefit of any growth. Property investment as a short-term investment is only for the very lucky, or the very brave!
The right time to invest in property is as soon as you’re financially ready, and that means putting together a strategy that includes a purchase plan and budget, because you really need to know how much cash you have available to invest and what returns to expect. And you’ll want to look at tax benefits. For example, with a positively geared property the tenant repays your loan while you build equity. This allows you to sell the property later and use the proceeds as a deposit for your next property.
Be ready to buy the perfect property when you find it by getting pre-approval, a good mortgage broker can be a valuable resource in the step. Did you know that after you take out a loan to purchase an investment property, interest on the loan and most property expenses can be offset against rental income for tax purposes?
Based on your strategy (negatively or positively geared), you’ll be able to begin your search, which will ultimately determine whether there is a good investment out there that fits your budget and loan serviceability. Look for areas where high growth is expected, that is, where there is potential for capital gains. And check out areas where rental income is high compared to the property value.
5. TAKE ACTION
Making property investment work is about getting the fundamentals right, which is usually achieved by solid research, observation and calculated risk. Of course, property prices go up and down, but if you don’t sell you are unlikely to ever make a loss. So don’t let indecision be your biggest barrier to entering the market. With the right advice, research and property selection, you can always profit.
What next? So now you’ve made the decision to get into the market, the best thing to do next is remain in the market — especially if you’re looking to use property as a way to replace your income in the long term and retire on your investments. It may be comforting to know that regardless of how markets are performing, there are always pockets of growth and high yields to be found. The key to having a great property investment is ensuring it outperforms the market in capital growth because serious returns come from areas with great growth prospects.
Allied Investment Group advisers can assist you to focus on what you want to achieve, show you how your property investment goals can be realised and more importantly, when to get in. Talk to an Allied adviser on 1300 886 149 who can provide you with the right steps to get your foot in the property investment door.