Owning property has long been the Great Australian Dream, and now more than ever Aussie’s are taking advantage of the influx of opportunity and record-low interest rates. To help you get the very best from your investment, Entourage Finance’s Director Damien Roylance has put together his top Property Investment Tips.
A Solid Foundation
Like any new project, a solid foundation is the key. Speak with your financial advisor for a full overview of your financial circumstances and to get an idea of the approval process. It is important to have the most realistic expectations from the very beginning to avoid any nasty surprises. Knowing your borrowing capacity will lay the foundation for all future decisions and is especially important in our current climate as in late 2015 lenders across the board tightened their servicing calculators.
Take with you to your appointment a rough idea of what you think you can afford. Remember, it is unlikely the income generated from the property will completely cover the mortgage repayments, so it is important to factor in any savings or cash surplus, and be specific. It is also important to remember the additional costs associated with purchasing property, such as legal, government and bank fees and stamp duty. A budget calculator is a handy tool and can give you a realistic estimate of what you can expect. Entourage Finance recommends the ASIC Money Smart budget calculator.
At the end of your appointment with your financial advisor you will have a complete understanding of your financial circumstances and, all going well, will soon be pre-approved for your loan!
A Strong Framework
It pays to prepare, and detailed preparation in these initial stages will provide the framework for smarter decision making and the most positive and lucrative outcomes. Choosing to invest your hard-earned cash into an investment property is a daunting prospect, and research is essential. Often while the media is glamorizing the property market and its more favourable conditions, there are areas of standstill or decline it is important you are aware of. Familiarise yourself with the varying areas, previous sales results, rental returns and vacancy rates as these will all play a part in achieving your desired outcome.
Rising interest rates are one factor we strongly recommend you plan for. Sure, they are low now, but what if they go up? How would an interest rate increase affect your financial obligations? Banks do a great job of mitigating their own risk, so you and your financial planner need to mitigate yours. Entourage recommends planning for this with a stress test, factoring in your circumstances with a higher interest rate. This creates a buffer for the worst case scenario, and will protect your expectations, and ability to meet your repayments, should the market change.
If rising interest rates are a concern, speak with your financial advisor about whether the security of a fixed rate option is a more suitable product for you.
Location, Location, Location
Location is perhaps the most important decision you can make when purchasing an investment property. While more often than not buyers will be attracted to “popular” areas, a savvy investor will understand the impact factors such as vacancy rates and supply and demand have on your potential return. Knowing the vacancy rates of your location, which can vary dramatically from suburb to suburb, will demonstrate the potential your property has of being tenanted, assisting your mortgage repayments and protecting your savings.
It’s also true that while a trendy area may be enticing, if the competition outweighs the perks your chance of increasing your return will be significantly impacted. Take Southbank for instance. In the last 14 years, an apartment purchased in Southbank has increased in value by a meager $30,000. That is truly a woeful return. Had that same money been invested in a property with a stronger demand, the purchaser could have experienced a potential value increase of almost 200%, which translates to an almost $800,000 return. This is a no-brainer. After all, the whole idea is to make you money.
Entourage Finance appreciates how daunting the process of investing in property can be, and we pride ourselves on having helped countless clients navigate the market and achieve their property and finance goals. You can feel confident knowing our personalized service and experienced team are there to support you through each stage of the process.
For more information about today’s blog post, or to set up your complimentary, obligation free consultation with an Entourage team member please click here
Damien Roylance is the director at Entourage Finance