Looking for a great investment property is not an easy task, especially when you don’t really know what you’re looking for. It’s vital to understand which factors should be considered that make an investment property a great decision.
If you want to purchase an investment property that will be effective in creating wealth for you, there are a number of things to consider. Some are essential, some less so — some you really can’t afford to ignore.
Let’s look at eight considerations that are a must when it comes to buying an investment property
- Know your goals – If you are to take only one thing from this article, it should be to “Agree upon, Set and Stick to your goals”. Generally, people who invest in property are looking for four main factors. These are:
-Growing Wealth through Equity
-Saving for retirement
-Increasing their income from rental yield, and
-Minimising their taxable income through Depreciation & Tax Credits
It is imperative that you know WHY and HOW this investment is going to benefit you in the long term. Providence always takes the time to establish your goals and circumstances before presenting properties that match your criteria.
- Capital Growth Rate – If you are looking to build your wealth via equity with the goal of either creating a property portfolio or paying off your home loan faster, you are going to need to know the 10 and 20-year capital growth averages of the suburb you are looking at investing in. This data will give you a conservative and accurate understanding of what to expect the property’s value to increase by in the years to come.
Take note that for the best chance of achieving your financial goals, you should do the figures to ascertain when you will be able to afford to purchase your next property, and how many properties you need to strive to own.
- Rental Income – Most Australians use their property’s rental income to service their investment loan. You should always obtain multiple rental appraisals from local agents to minimise surprises and use the average of all three to create your budget.
- Use a professional property manager – Poor handling of your property and its tenants could seriously hinder your wealth creation journey. Engage and pay for a professional who will take care of all aspects of your property’s management. Remember, the rental management fee is tax deductible, so choose a rental manager who minimise any potential stress and maximise your property’s performance. Get a rental manager to take care of everything, from paying water rates and body corporate fees to land tax and council rates. You pay them to manage your property so get them working for you.
- Vacancy Rates – In order to make sure you are buying a property in an area where there is low supply and high demand, it’s important that you know a suburb’s current vacancy rate. Vacancy rates represent the amount of properties in a specific area that are vacant or unoccupied at a particular time. Vacancy rates can be affected by a number of factors, one of which is the amount of new properties that are being built. This is why you should always be up to speed with local council development applications. You can find this information on most local council government websites.
- Employment Drivers – It’s very important to know what employment centres are going to sustain and stimulate job growth near your property. Why is this important? Because job growth will promote steady population growth. As more people gain employment in the area, they are likely to want to live close to work too, resulting in increasing demand for property. And more demand will only continue to drive property values up.
- Transport – Location is and always has been a crucial factor when choosing where to live. People are frequently willing to sacrifice the size of their land or even the size of their home for a desirable location. Easy access to amenities is sure to increase the desirability of any area, so when looking at a property’s location, ask yourself: is it practical and easy to travel to local amenities, education centres and entertainment venues? What public transport infrastructure is already established or coming?
- NAPLAN Scores – In 2008 NAPLAN was introduced into the Australian school system. Its impact on the property market: Suburbs within catchment zones of high NAPLAN-scoring schools have seen increased demand. Parents are seeking out homes which allow their children to attend these schools that will potentially give their children a higher level of education.
Property is likely to be the biggest investment of your life. With the right support and guidance, it can also be the best investment you ever make. Speak to Providence today about growing your property portfolio. Email us at email@example.com or call 1300 25 25 50.
Chances are you’ve heard of the banks’ property ‘blacklists’ – the suburbs that the banks really don’t want to lend you money to purchase in. If you’re shopping for a loan to buy in a bank’s blacklisted suburb, you will find they will decrease the Loan to Value Ratio (LVR), therefore requiring an additional deposit of 20 or 30 per cent and reducing the perceived risk to the bank. Or they simply won’t lend to you.
A quick Google search will give you results like an article in October 2017 that claimed 600 towns and suburbs were on NAB’s property lending blacklist. But how valid are these lists and how transparent is the information provided? What agenda is driving these suburbs to appear on the list one month and gone the next? How valid are these blacklists, and how they can affect people as purchasers, whether you are an occupier or an investor?
The central question here is how does a bank decide that a suburb is too high risk for their liking and should belong on their blacklist?
There are two reasons why a suburb might appear on blacklists.
Reason 1. The banks believe a certain suburb has too much supply, with an excess of development being carried out. This could apply to suburbs with high density housing or low density new house and land estates.
Reason 2. The banks have too much exposure in one particular suburb. For example, the bank may have lent too much money to investors and/or owner occupiers.
Looking at the first reason, a suburb being on a blacklist can be a good reason to dig deeper and look at the supply and demand in the area. For more on how to utilise supply and demand figures in real estate, take a look at our recent article ‘The danger of misunderstanding figures for supply and demand in property’. Don’t just accept that the suburb you’re interested in is on a bank’s blacklist and scratch it based on that fact alone, because it just isn’t enough — as is clear from reason two.
Reason number two is a crucial reminder that different banks may treat your lending needs differently based on their own interests. While one bank may be looking to limit their exposure in a certain suburb, another may not have that same overexposure.
The truth behind blacklists is that banks may very well choose to blacklist suburbs because of their personal, circumstantial risk assessments, not to protect potential lenders from a poor performing suburb as some may be lead to believe.
When property blacklists and results don’t align
Over the last 12 months the Sydney property market has declined 0.32%, however the suburbs NAB Blacklisted in Oct 2016 have performed very well.
This list shows Sydney suburbs that were on that NAB October 2016 Blacklist, demonstrating that while a 20 per cent deposit was required to gain a loan to purchase in these areas, they performed well.
Chatswood NSW: 12 Month Growth House 4.42%, Apartments 7.07% growth
Average 10 Year Capital Growth: House 9.91%, Apartments 7.58%
Putney NSW : 12 Month Growth House: 31.58%
Average 10 Year Capital Growth: House 8.99%
Newington NSW: 12 Month Growth House 5%, Unit 2.64%
Average 10 Year Capital Growth: House 7.78%, Apartment 6.29%
Auburn: 12 Month Growth: House 9.48%, Unit 5.66%
Average 10 Year Capital Growth: House 9.32%, Unit 8.04%
Baulkham Hills: 12 Month Growth: House 10.91%, Unit 14.04%
Average 10 Year Capital Growth: House 9.22%, Unit 7.65%
The Ponds: 12 Month Growth 7.14%
Average 10 Year Capital Growth: 14.15%
The impact of blacklists on selling
Blacklists aren’t just a buyer’s consideration — if you’re selling in a blacklisted suburb, you could be affected too. We frequently help clients through the process of selling property, and a blacklist is something we take into account when timing a sale.
Even if a suburb has been performing well, reluctance from banks to lend to buyers interested in your blacklisted suburb or requiring a larger-than-normal deposit means you could experience reduced interest or find your buyers require more time to secure finance.
The broader impact of blacklists
Understanding that blacklists are not always what they seem is essential because they are often referenced as a means of assessing the state of the property market.
Lending blacklists that keep coming up from banks seem to be the basis of many articles that feature in publications, such as the Financial Review as an example. These articles use these lending blacklists as an indicator of what’s happening in real estate more generally. However, as we’ve explored throughout this article, while a suburb appearing on bank blacklists could encourage you to explore its potential risks, there are many bank-centric reasons why blacklists feature the suburbs that they do from one month to the next.
Certainly major economic occurrences such as a downturn in the mining industry will trigger a bank to place suburbs on a blacklist, but only when the major industries are slowing down. In this instance, the property market would have already started to cool when banks announce the suburbs to go on the blacklist.
In summary, while you shouldn’t base property decisions solely on blacklists, they are still something to add to your research arsenal. Never let a bank’s property blacklist deter you from a purchase without doing the research yourself.
Better yet, enlist our help in assessing the optimal property investment choices to reach your goals. We take a three-tiered approach to property research and our experienced team of property investment experts can use our proven strategies to help you discover advantageous property opportunities. Contact us here or call 1300 25 25 50.
Written by Lynton Stevenson, Managing Director at Providence Property Group.
As many of us know, buying where you can afford does not always equate to buying in an area you love. Even the worst house on the best street can be way out of budget these days. So how can you enter the property market to become a home owner AND live where you really want to live? It’s simple really: rent where you love while buying to invest where you can afford.
Though often overlooked as an option, there is no rule that says you need to own your principal place of residence in order to invest in property. In fact, it’s a really effective double play with many potential benefits.
Of course, you’ll need to make some smart decisions for this to work for you. But when done well, buying an investment property while renting in your dream location can give you all the benefits of property ownership without sacrificing your lifestyle.
There are other perks too. Let’s consider them:
Effective wealth creation — sooner
By the time you saved enough or waited until circumstances allowed you to afford to purchase in the area you truly want to live in, chances are you will have missed out on a lot of capital growth. Not to mention strong rental returns from your property (again, it’s all about choosing wisely — this is where we really shine for you).
Purchasing to invest rather than live could even enable you to generate cash flow. Down the track, or right away in some cases, rent from your investment could be paying off the property, and contributing to or even covering your rent! Compare this to owning your own home — you won’t generate any cash flow from it and in fact won’t really know if you have any profit from it until it comes time to sell.
Tax advantages on investment properties
As an owner of rental properties, there are many tax benefits for you to lessen the cost of property ownership. Many of your property expenses such as improvements, maintenance and repairs, can be offset against your rental income. Depreciation of your property can be a tax deduction. Even the interest on your property loan can be claimed as a tax deduction, if your property is negatively geared.
When done properly, the cost of paying down the loan on a rental property should be achieved by the Tax Man, the Tenant and to lesser extent, You, the investor. The debt on a rental property is good debt, as opposed to owning your principal place of residence, which is bad debt.
We can help you get the most out of your investment property (and the tax man), just chat to our team.
Continue to rent in the location you love, while in the meantime your investment property increases in value or you buy more properties to create an impressive portfolio. Buying to invest means you could go on to purchase additional investment properties without the need to sell up and pay capital gains tax.
By living in a rental, you can change where you live without the need to pay expensive fees like stamp duty.
And if you do still want to purchase a principal place of residence, you’ll have equity behind you to perhaps even end up buying in that dream location after all!
Share the investment
Depending on your financial situation it may be worth considering buying an investment property with a trusted family member or friend. You would be unlikely to do this when purchasing a home to live in, but sharing income drawn from an investment property can work.
Explore your options and make the right property choice to suit your circumstances and goals
Your property goals are our property goals at Providence Property Group. With a focus on research and a commitment to results that exceed your expectations, you can trust our team of property investment specialists to guide you in the right direction based on your goals and budget. In fact, we can do more than just guide you — our services and expertise extend to helping you right through the property research and purchase journey, and beyond.
Is buying to invest right for you? Start a conversation with us today by calling 1300 25 25 50 or email firstname.lastname@example.org. Alternatively, just pop your details into this contact form and we’ll get back to you.
As the most sought after and populated capital city in Australia, it’s no surprise that people get excited about the prospect of investing in Sydney.
Over 70,000 people make the move to Sydney every year! With our world-class landmarks like the Opera House, Sydney Harbour Bridge and incredible beaches, it’s really not surprising that so many people want to call Sydney home.
While our beautiful city and culturally diverse suburbs have many drawcards for people choosing somewhere to live, is investing in Sydney really the best option currently?
Considering investing in Sydney? Read this first.
As leading data and research professionals for property in Sydney and beyond, at Providence we spend much of our time analysing the performance and cycles of Australia’s property market in various regions. Our role as Buyer’s Agent, Selling Agent and more means we combine our extensive knowledge with on-the-ground expertise to be able to provide you with valuable property market insights. Here’s what you need to know before investing in Sydney:
- High premiums
In the past seven years since 2011, the Sydney property market has gained over 76% in capital growth (averaging 10.85% per annum). As a result, Sydney buyers are now paying the highest premiums in Australia. Compared to other states, as much as 50% more than Brisbane and 30% more than Melbourne.
- Weak yield
You are also receiving the lowest rental yields. Which means the cash flow return on your money invested is the lowest in Australia at around 2.8%. Not so attractive when compared to Perth at 3.7%, Brisbane at 4.1% even Hobart at 5%. As a result of Sydney’s weak yield, ability to service their loan is now becoming out of reach for most investors.
- Market currently cooling
Did you know, between 2001 & 2011 the city of Sydney was the worst performing capital city throughout the whole of Australia with an average yearly growth rate of only 4.4%? How did this compare to other cities? During this time Hobart had a higher average yearly growth rate of 4.6%, Melbourne 7.1% and Brisbane 7.68%. Our research suggests that the Sydney Market will cool over the next twelve months and capital growth numbers will probably normalise to similar levels we saw between 2001 and 2011.
The good news is that the investment dollar is transferable. This leads investors to explore opportunities in other major capital cities where historically during this phase of the property cycle they have benefited from above average increases in capital growth.
So where should you invest next? That is something we can explore with you, to ensure you have the best chance of choosing an investment that works hard for you and gets you the results you’re looking for. Contact us here.