Investing in property for the first time can be an exciting move for any individual. With the Aussie property market continually evolving and growing, getting involved in one of the liveliest industries can pay off if you do everything right. Whether you’ve come into money that you’re looking to use effectively, or you’ve been saving for years to make your first property investment, starting out with as much information as possible is the best way to set yourself up for success.
With property values ever-changing and the property market requiring a little experience to get right, we’ve collated some of the top tips to get you started on your property investment journey on the right foot. Read on for our top 5 tips for first-time property investment in Australia:
1. Start by understanding your finances
It may be tempting to jump head-first into property investment the second you’ve got your cash together, but there’s more to consider than just the up-front deposit when it comes to investing in properties. Buying a property for investment and buying a home to live are two quite different things. One mistake many first-time property owners make is thinking the finances are the same for both. But if you’re not using the property you’ve invested in for personal use, you may find yourself encountering costs you weren’t expecting.
When you buy a property for investment, some of the costs you’ll need to consider are:
- Fees for investment loan applications
- Lender’s mortgage insurance for large, lump-sum deposits
- Typical government charges on all properties
- Professional inspections and conveyancing
- Strata fees on communal areas of properties
- Landlord insurance
- Maintenance and repair costs as a landlord
- Property management costs
- Vacancy costs for when you don’t have a tenant
- Taxes and other charges specifically aimed at landlords
The actual list of what you’ll need to pay may vary, for example, if you decide to ‘flip’ properties to sell in the short term. But if you’re planning to hold onto a property investment in the longer term and make passive income from renting it out, all the above will apply – and it’s important you go into property investment with your eyes open to all the costs involved, so you’re never caught short.
2. Do your research
Another mistake that brand-new property investors often make is choosing a property too quickly based on face value, instead of doing the research behind the scenes to ensure you’re getting the best value for your money. A little extra sleuthing can ensure you can maximise your investment and pick a property that suits your needs both in the long and short term.
So, what should you be researching? The basics, like what similar properties are selling for, how much other landlords are charging for rent and even nearby developments, are all good places to start. You could also take a closer look at what amenities are offered nearby – such as schools and transport – and if there are plans to expand those amenities soon.
3. Choose a growth area
This point feeds into the point above about doing your own research. If you’re considering a specific area for property investment, picking an area with growth is always a good bet for long-term investment. The introduction of better transport links or educational facilities in the future is a couple of the indications of an area with growth and development potential.
It is worth noting that there’s a difference between housing development and commercial development. While new retail stores, office blocks and transport hubs are all great news for investment, a large number of property developments aren’t going to have the same positive influence on your growth. Pick an area where growth in amenities is on the rise will always appeal more to renters, which in turn can lead to better growth for your profits.
4. Know how you’ll manage your properties before you complete the sale
A prepared property investor is a more successful property investor, and this is just as true in property management as it is everywhere else. If you’re buying property close to home, you may be able to save costs by carrying out general management tasks yourself. The flipside of that is you’ll have to learn all areas of property management and handle them promptly, from maintenance and repairs to screening tenants, carrying our inspections to completing evictions in some cases.
If you’d prefer to be more hands-off in your property management, hiring a dedicated and specialist company is the alternative. With a rate typically between 7-10% of your rental income per week, a property manager takes control of all day-to-day details, so you don’t have to worry. If you have another full-time job or you‘re buying property in a different state, hiring a property management company might be the best bet for you.
5. Try to think of your investment properties as a business
When you own something, it can be difficult not to form a connection with it. While it’s perfectly fine to take pride in your own home and consider it all yours, investment properties are less yours personally, and more yours in a business sense. If you’re able to change your thinking to see investment properties as part of your business, it’s far easier to separate heart from head when it comes to how you manage that property.
To further that point, the act of owning a rental property or investment property is a business all of its own. You need to ensure that financial goals and obligations are met, you have specific governmental and legal responsibilities, and you need to ensure everything is managed appropriately to achieve long-term success. Start thinking on those terms, and you’re far more likely to do well whether you own one investment property or one dozen.
6. Don’t forget about your taxes
No-one likes to think about taxes, but when you invest in property, it’s something that should feature on your management list. But not everything to do with tax is necessarily bad when it comes to additional property ownership. For example, if you buy a property that is negatively geared – interest and other costs on the property account for more than the income you receive – that loss can reduce your income tax as you’re paying out more for your business than you are earning.
Of course, if you’re making good money on your property, you can expect to pay extra income tax. If you also choose to sell your property later, you may need to pay capital gains tax on any profit you make. This amount will be minus the costs of buying and selling, commissions, legal fees, and stamp duty, so may be less than you’d think. If you’ve owned your investment property for more than 12 months, you’ll only need to pay capital gains tax on 50% of your overall profit, too.
While much of property investment tax is about what you need to pay, there is another side to your taxes to consider. Tax deductions are one of the benefits of an investment property, and you can claim them on a wide range of different rental properties. These include:
- Costs of advertising
- Property management costs
- Loan interest charges/fees
- Land tax, strata and council fees
- Insurance (building and landlord)
- Cost for repairs and maintenance
- Accounting costs
This isn’t an exhaustive list, but it’s well worth researching further to find out exactly what you can claim. A qualified accountancy service may even be able to help ensure you maximise your tax deductions.
If you’re considering investing in property for the first time, having a solid understanding of what to expect and what will happen can help ensure your success. From knowing your finances to doing your research, the more prep work you put in, the easier the process will be for you.