Ten Commandments for First Time Residential Property Investors
Potential residential property investors are often bewildered by
the wealth of information available regarding property
investing, which is often contradictory.
First time property investors should take the following points
into consideration before embarking on their property purchase
but always check their own circumstances out with their
accountant before committing any funds to the project: -
1. Rely on the numbers and leave emotion out of the transaction
as you will not be living in the property
It's not critical that you adore the colour scheme, the type of
handles on the doors or some other features of the property -
the numbers e.g. purchase price, rental return, supply of rental
property in the market and potential capital gain, must stack
up. These details, apart from potential capital gain, are
readily available from real estate agents.
2. Start small time - you will be able to sleep at night that
way
Start with a lower priced investment property and a smaller
loan. As you will be, most likely, subsidising the loan
repayments, there is less pain with a smaller loan if you are
not receiving rental income during any period. Being able to
sleep at night is always an investor's objective.
3. Treat your property investment as long term
Unless you have bought a red hot bargain, you won't be able to
achieve substantial short-term gains and you need to be able to
recover your purchase transaction costs such as stamp duty and
legal fees together with your selling transaction costs. Of
course, capital gains tax also comes into the equation when you
sell. Capital gains tax will apply when you make a profit after
owning the property for more than 1 year (from purchase exchange
of contracts to sale exchange of contracts)
4. Either buy locally or within driving distance from home
It's reassuring to be able to regularly see the property and
know that it still exists and you are likely to be more familiar
with the market. This does not mean that you should necessarily
be purchasing the property next door to your own home as it's
advisable that you remain at arm's length from your tenant and
enjoy some anonymity. If you do purchase in an area that you are
not familiar with always ensure that that obtain an independent
valuation on the property you are purchasing even where you are
using your own home as security.
5. Engage the services of professionals
It makes good sense to use the services of an accountant, a
lawyer, a realtor and a mortgage broker to assist you in
purchasing and managing your residential investment property.
6. Obtain advice from your accountant regarding the name in
which the property should be purchased and the loan obtained
This decision can have substantial tax implications and should
not be taken lightly.
7. Consider a fixed interest loan when borrowing
It will provide interest rate certainty. Whether you borrow
interest only or with principal and interest repayments depends
on your own circumstances. Your home loan specialist and
accountant should be able to assist you with this decision and
whether you borrow on a fixed or variable basis.
8. When selecting a property to purchase look for proximity to
transport and amenities and avoid high maintenance features such
as a swimming pool or a large garden
It's important to purchase property that a tenant will be happy
to live in. You should try to appeal to the mass market e.g. 3
bedrooms and covered car parking in an area where there is a
high demand for and not an oversupply of vacant rental
accommodation. When you buy properties, which incorporate a
swimming pool or a large garden area, you can count on the fact
that the maintenance costs will increase without any increase in
rent.
9. Don't attempt to squeeze the last drop out of your rent
It makes more sense earn a lesser rent but to have long term
tenants who will look after the property and treat it as if they
owned it. It's also smart to explore the cost of insurance cover
over rental income and property damage.
10. Don't stop with a single residential invesment property
The first purchase can be a daunting process but the second and
subsequent properties are easier to purchase than the first.