Are you ready for an investment property?
Australia recorded a national vacancy rate (that is unoccupied rental properties) of just 1.0% in June according to SQM Research. This means the rental market is strongly favoring property investors. Over the past 12 months, the vacancy rate has fallen from 1.7% to 1.0%. As a result, there is now only one vacancy for every 100 rental properties.
With the short supply of rental properties and the recent drop in property values, a lot of clients are talking about buying their first investment property, and I have a few general thoughts on this for you to consider:
Why buy a Residential Investment Property?
Residential property is a house, townhouse, terrace, or unit rented either short term or long term, and I consider it important to work out if you are buying for long-term capital growth or future income (or sometimes both). In rural areas traditionally rents can be quite high however growth can be very slow…so what and where you buy a property is an important consideration.
But I will get a great tax break, right?
What is Negative Gearing?
Negative gearing is the loss you make on an investment property where it costs more than you earn from it. Speak to a tax expert about this and do your own research from the ATO website. Some investors have found it difficult to achieve negative earning where interest rates are low and rents are higher…but there are other costs….
What is Depreciation?
Depreciation is the method of writing of wear and tear on assets used to produce income and we would recommend you have a depreciation schedule professionally done when you buy (some large developers offer this when you buy a new apartment).
What does using equity to buy an investment property mean?
If you have a good chunk of equity in your home (in other words a low loan value against the overall property value), you may be able to use that equity as security for the investment property. Or if you prefer to borrow against it and keep your investment loan secured by your investment property, we will give you the pros and cons of both when we chat.
What happens if interest rates rise?
Property is long term and interest will rise and fall over the term of your loan – I have had situations where clients have interest rate rises and drops so you need to stress test this for yourself. Your lender is already making sure you can keep paying the loan back at 3% above current rates.
What happens if I can't find a tenant for my property?
Again, you need to consider the worst cases – you can also consider a tenant that fails to pay rent as they can take a while to move on. Look at insurance and rental guarantees offered and also make sure you have a bit of money set aside to cover rent shortfalls.
Does property double in value every 10 years?
Real property has always been considered a prime investment for long-term capital gain (7-15 years) but it's really important to know that is not always the case. Some of my clients have owned the property for years with no capital growth at all. If it is your first time do your research or employ a buyers advocate to help you get there.
Of course, we are always here to talk if you need us.