Purchasing an investment property is generally a major life decision. It involves a significant commitment of time, finance and capital… all the more reason to “do it well”.
Following are seven (7) tips, some of which may be useful to you:
1. Take time to consider the best investment vehicle in which to buy the property
There’s not a “one size fits all” approach to this… if you want a tax break, it may be best purchased in your name… if you want to increase your family’s assets, but you don’t want to increase your ownership of asset (for example, because you are a sole trader, partner or a director of a trading company) it may be best to buy the asset in your spouse’s name or another entity (for example, Family Trust, Holding Company)… if you want to be able to stream income from the investment to family members, it may be best to buy the property in a Family Trust.
Suffice it to say, it may be wise to take advice from your lawyer and accountant before it’s too late, having already entered into the contract.
2. Know your dollar limit before you start
We believe it’s best to obtain pre-approval of finance. This will then enable you to hone in on properties within your parameters without wasting time on those that aren’t.
3. Know how you will pay your deposit
You won’t necessarily need to have a 10% cash deposit. If you’re asset rich, cash poor, your Lender may be able to organise a Deposit Bond.
You may also need the Vendor to pre-approve a Deposit Bond if there isn’t already a provision in the Contract allowing its use.
If you are cash poor, and can’t secure a Deposit Bond, you can always ask the Vendor if they’ll accept a 5% deposit instead.
4. Be prepared to have independent Pest & Building Inspections undertaken quickly
If you’re going to require these inspections to be undertaken before you proceed with the purchase, do what you can to place yourself in the best position to have them undertaken quickly and independently of the Report obtained by the Vendor or the Vendor’s Agent. It could be that you find the place you want, but end up in a race with another prospective purchaser. Having identified the inspectors you want to use, and having touched base with them about their requirements, should place you in the best position to be on the front foot when it counts.
Some Contracts (particularly Auction Contracts) may contain Reports provided by the Vendor or the Vendor’s Agent. Although the information may prove useful, be aware this Report was prepared with the Vendor’s interest in mind, not yours. As such, it may not reveal important factors that you should be made aware of before agreeing to buy the property.
The same advice applies for Strata Inspection Reports in the case of purchases in a Strata or Community Scheme.
5. When choosing your property, look at the long term benefits
Take into account not only rental return, but capital growth. Buy properties that have schools, shops, transport and employment opportunities in their vicinity, as they are more likely to be attractive to the greater community of tenants and prospective purchasers of investment properties. Also, make the property attractive to more renters by keeping the inclusions in neutral tones and good order.
6. Insure yourself
You should seek advice from Financial and Insurance Advisers regarding the Insurance appropriate to your circumstances. It would be disastrous if you needed to sell the property urgently due to your inability to maintain mortgage payments during a lengthy vacant period.
7. Choose a good Property Manager
Remember the Property Manager’s job is to manage tenants, your job as Landlord is to maintain the property.
We find that people seem to do best when they don’t take a “set-and-forget” approach. Be interested in your investment. Be pro-active in ensuring the property is maintained well. Leaving a property to deteriorate just because no-one has raised any complaints may gradually devalue your investment. You should ensure you are able to inject some capital every now and again to keep it safe, tidy and functional. This will also attract good quality tenants and increase your prospects of a quick sale when your investment has done its job for you.