As a first-time investor, it is important to focus on the fundamentals and invest in what you can afford, rather than jumping into the deep end before you are ready.
As we enter a new financial year, a growing number of people in Australia will considering buying an investment property for the first time.
It is important that first-time investors take a conservative approach and focus on buying an investment property that they can easily afford.
Property is a long-term investment strategy and the old saying, ‘Mighty oaks from little acorns grow’ is very applicable to first-time investors who want to build a successful property portfolio.
It is therefore critical that investors do not over-expose themselves financially with their first purchase. Buying a lower-priced property that has the potential for strong capital growth can be an important building block to a successful property portfolio.
Lower-priced properties also tend to have higher rental returns, and this factor is important during a climate of rising interest rates.
Issues you should consider when buying your first investment property include:
- Spend time researching all aspects of the property market before even looking for an investment property. Issues such as negative and positive gearing, rental returns and depreciation are key matters that have to be considered by first-time property investors.
- Past trends in property values are generally an indication of future trends, and therefore it is wise to examine the long-term capital growth rates of the suburb. There are a number of online sources that can provide property value trends for most suburbs, over the last 10 years at least.
- Take a broad approach to buying an investment property. Most first-time investors buy a property in their local neighbourhood because they are familiar with the area. By taking a narrow approach to the location of the investment property, you can severely limit your options.
- Try to target suburbs in lower-priced areas that have a higher number of properties for sale. Check the internet and weekend papers and identify areas with large numbers of advertisements.
- When you have selected a suburb, don’t make an emotional decision when choosing a specific home. Most first-time investors purchase a property they would like to live in. It is important to remember that the investment property must appeal to the tenant, who will be paying the rent.
- Check out any planning changes proposed for the suburb. Many local governments are undertaking reviews of zoning, which could have a major impact on property values. For example, a property that was purchased for a single residential use and then rezoned by the local council as a triplex site will increase substantially in value. The planning department of a local government can advise first-time investors of any proposed zoning changes.
- Check out any planned infrastructure changes for an area you are interested in. For example, an upgrade of a local shopping centre or construction of a new railway station can have a major impact on local property values.
Paul Bennion is the managing director of DEPPRO tax depreciation specialists.
DEPPRO Pty Ltd is Australia’s leading property depreciation company, specialising solely in the preparation of tax depreciation reports for residential, commercial, industrial and leisure investment properties.