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Property Investment 101


1 August 2016

Bricks and mortar, houses and units, appear to be a lot easier to understand as an investment option when compared to the many other types of investments. Yet you still need to be aware of a few more things.

1. Head over Heart

When it comes to investing, you should always buy an investment property based on analytical research, not by what your heart tells you. Will it provide the gains and returns you require? Will the location attract quality tenants? Will it appeal to the owner occupier market that sustains property prices in the long term?

By answering these questions, rather than buying a house because you loved the fireplace or curtains, you are thinking about the economics, not the emotions.

2. Set up the Goal

posts Successful wealth creation through real estate requires you to set goals, determining where you want to end up, and then devising a cohesive plan to get there.

You need to focus on both the short and long term and ensure your investment decisions gel with your overall strategy. Work out what you want to achieve with regard to income – are you chasing short term yields or long term capital growth – and how you can best manage your cash flow as a smart investor.

What type of property do you need to buy in order to meet your income goals?

With a carefully thought through outline of your investment journey, you will end up exactly where you want to be.

3. Costs, costs, costs

Once you have a property in mind, work out your income and expenses. Think about the income you expect to get from it and what your regular expenses will be. Can you cover all if a sudden shortfall occurs?

Buying, selling and managing an investment property can be costly and will affect your overall return. Will you handle your growing portfolio or pay a professional property manager?

Property costs when buying can include stamp duty, conveyancing fees, legal costs, search fees, pest and building reports; while costs of owning can include: council rates, water rates, insurance, body corporate fees, land tax, repairs and maintenance costs plus property management fees. Chew the fat before you make a rash decision.

4. Do your Homework

You may think you’ve found a good deal, but keep in mind that market price fluctuation and further housing developments may ultimately impact the resell value of your property. Understanding property markets takes time.

Consider this:

  • Familiar markets - Consider buying property in an area you are familiar with as it will take you less time to research. Check recent sale prices in the area to give you an idea of what you can expect to pay for local properties.
  • Growth suburbs - Look for areas where high growth is expected, where there is potential for capital gains. Property experts regularly provide tips on up and coming suburbs, just make sure you are aware of any biases they may have.
  • Rental yield - Look for areas where rental income is high compared to the property value.
  • Low vacancy rates - Find out about the vacancy rates in the neighbourhood. A high vacancy rate may indicate a less desirable area. This may make it harder to rent the property and may make it difficult to sell in the future.
  • Planning - Find out about proposed changes in the suburb that may affect future property prices. Things like new developments or zoning changes can affect the future value of a property.

At the end of the day, it all comes down to supply and demand.

5. Consider off-the-plan

Purchasing a brand new property fresh off-the-plan may provide the financial security you are after. By choosing an off-the-plan property you get to pick the right apartment, while gaining time to secure the funds required for the final settlement payment. As construction takes approximately 18 -24 months to completion, you can take comfort in knowing with certainty that your capital gains are only going to grow.

6. What Now?

Many people get into property investment hoping to become overnight millionaires.

They think property will be a quick fix to their financial problems, but the truth is seeking short term gains in real estate is more about speculation than strategic investing.

The primary reason that bricks and mortar is a long term prospect is that it lacks the liquidity and hence the volatility of other assets classes, such as shares.

By approaching property investment with patience and persistence, you will gain far more success (and wealth) than if you seek out the “next big thing”.

CBRE Residential Projects have a wide selection of great investment opportunities that tick all of the right boxes. Ready to take the investment plunge, check out our latest residential projects near you and get in touch with CBRE.