Of course, you are looking for a solid investment and smart place for your money to grow. It doesn't matter if you are considering your first property investment or your 50th, you want to see great returns. Unfortunately, there is no such thing as a sure thing. No one has a crystal ball to reveal the future. Even investments with strong return histories can fall apart if an unexpected change occurs, like the 2019 coronavirus outbreak for example. No one could ever have predicted something like that would take place, and that it would have such impacting ripple effects all over the globe. Any investment you make is a roll of the dice in some regards; supply and demand fluctuate, interest rates change and economic predictions can fail.
Is property investment a smart choice? To help take some of the guesswork and risk out of investing in property it's as simple as putting in some solid research, investing a sum that you can afford and having realistic expectations on your returns. All this, plus the tips below will help go a long way in making your investment a long term success.
If you are considering investing in property there are some tactics you can employ to determine value and avoid nasty surprises. Here are some common mistakes to keep a lookout for so you can avoid them.
Failing to hire a property manager
Yes, it is cheaper to manage your property, especially if you're also thinking that taking care of all the details is a great way to keep an eye on everything. But what happens when we factor in the cost of your personal energy use? The cost of your time is a factor you need to take into account. Think about it this way, if you are going to be doing all the manager work, who is going to be making the executive decisions on your investment and maintain your overall investment strategy?
It's not possible to be the overseer of the investment and the ground level do-er at the property. If you had to hire either a CEO or a property manager you can quickly see that your money is better spent on the service delivery, freeing up your time to actually run your business and stay ahead of any legislative changes.
Disrespecting the data
Going on a 'gut feel' might feel right at the time, but there is just no way you can avoid taking the data seriously, no matter how 'trendy' our postcode might seem.
You will need to analyse the numbers to determine the potential for wealth generation no matter how well you think the property will perform.
Local growth history, economic drivers, employment numbers, vacancy rates, population growth, yield, and reasons behind historical growth are only a few of the factors you need to be analysing to determine more informed future property wealth possibilities.
Repaying debt equally
If you are working hard to chip away at all your loans and dividing up your paycheck so each loan gets an adequate share, you might be doing more harm than good. If you have other loans besides your investment property loan these are best to focus on paying off first, that, and personal loans, any mortgage on your residential home loan, or credit cards. The reason for this is they don't offer the benefit of tax deductions. Get those other loans down to zero to reduce your interest and so you get to claim your investment debt interest at tax time. Of course, once your loans are paid off you want to keep them that way and revert your spare cash into your investment loan.
Overlooking depreciation value
When you consider your property type it's well worth crunching some numbers in a depreciation calculator. Property age and type can make an enormous difference to how much you can claim on your tax, even to the tune of thousands of dollars per annum in depreciation deductions.
A qualified Quantity Surveyor will be able to help guide you on what items are included and provide you with a depreciation schedule. If your property is eligible then you must make sure you capitalise on it and include it on your tax claim.
Sudden rent increases
Rental markets can move very swiftly so it's worth building in a slight rent increase with every lease renewal so that your tenants don't get the shock of having their rent suddenly hiked up by $100 a week several years down the track because you weren't paying attention to the current rental value.
Lofty ideas on rental prices
You may have worked out the ideal rental price to repay your loans, cover your expenses and have everything ticking away neatly, however that perfect price might not be the most competitive, meaning that you could be facing weeks, even months with a vacant property where you will fall increasingly behind on those sweet spot numbers. If you are not able to get a tenant in on the price you expected, adjust prices to what you deem is worth the rent, let's say by $20 a week, to entice renters in and get a long term lease signed so you have a great amount of money coming in immediately, rather than the perfect amount of money coming in...who knows when.
If you want to make a smart investment choice you'll need to input some smarts first. If you have any questions at all on the property you are considering as your investment please give us a call to hear about how having a conveyancer on board early, can assure a smooth exchange and avoid buyers remorse.