Kathryn Lee - 23 Jan, 2020
The traditional form of investment: for generations buying an investment property has been a tried-and-true method of building wealth, as well as increasing assets. Though fads – such as bitcoin – might come and go, property investment will seemingly be on everybody’s radar.
We all know the story:
“My [insert family member] used to have a house in [insert booming inner-city region]. Back then it was worth $35,000. Now, it’s boosted to over a million.“
No wonder property investment is so popular. Not only does it allow you to see and feel your investment, but you can also live in it – all while it builds in value.
However, before jumping in headfirst, it’s important to understand the ins and outs. As the name might suggest, buying property is indeed an investment – and a huge one at that – so you’ll want to give yourself the best chance of doing it right. That’s where this guide comes in.
Note: First home buyers check out our top tips for your first home loan journey.
When investing, there are a multitude of factors to consider, including (but not limited to):
Check out our top 6 tips for first home buyers
Leverage is about looking at how much rent or borrowing power you’ll be able to gain from the property – as well as considering any leverage you might already have (such as equity from a current property).
Buying an investment property does not necessarily mean you need a lot of cash upfront. Often, once you have bought your first property you are able to use the equity to secure more property loans; contributing to a bigger portfolio.
If you’re planning on renting the property, remember to check the property’s rental yield, and consider whether you’re looking for a short or long-term gain.
For example, an apartment might have a higher rental yield than a more expensive house in the same suburb but, over a long period of time the value-increase of the house might be greater (equating to more equity).
In contrast, the apartment could offer a greater short-term reward which you will be able to funnel into other investments, or use to pay off your loan.
Consider the market to see whether shares or property investment is worth your time. Generally, shares are better for the short-to-medium-term investments and property is better for the long-term. Remember, financial advisors can be a sound source of advice when weighing up the decision.
Read more on whether Is it worth seeing a financial advisor?
Is having a tangible asset something you put a lot of importance on? Are you looking for a long-term investment that can put a roof over your family’s head? For these reasons, property investment is often the right choice.
Before jumping into property investment, ensure you are committed to your personal budget. Although following a spreadsheet that tells you to cancel your Netflix subscription and stop buying takeaway coffees mightn’t sound like much fun, if you’re truly committed to the investment it’s do-able. At the same time, be wary of setting too-strict of a budget that realistically, you won’t be able to follow.
As time goes on, conditions of the property market change. At the same time, investors must consider whether they are looking at a property for the short or long-term.
Before jumping in, do your research! Absorb market stats and learn what they’re doing, and why. What makes conditions favourable? What is making them worse? How are interest rates affecting the market?
When in doubt, seeking financial advice from a qualified financial advisor is never a bad idea.
There’s a reason this is such a common saying.
Location can be this standout feature. Things to look for:
Words by Kathryn Lee
Got your eyes on an investment property? eChoice can help with that. With access to 100s of home loan products from over 25 lenders, eChoice have your investment needs covered.