Does it still make good sense to invest in residential property? The answer to this question just 12 months ago would have been an all too easy ‘yes’ however, over the intervening time residential investors have been given a hard time.
They’ve been characterised as the bogeymen of the market forcing up prices, taking too many risks and even being accused as being partly responsible for locking first-time buyers out of some markets. So much so that regulators and the big banks have reacted by imposing stricter loan conditions.
There has also been debates about changes to negative gearing and other tax rules. It’s enough to make you want to keep your money in the bank, or perhaps given recent revelations even under the mattress!
My reaction is just the opposite and I’ll briefly explain why.
The focus of my argument; that residential property certainly remains a good investment, is based around some clear-cut and I suggest common sense criteria.
It’s a list or if you like a reality check on how best to approach your potential investment and, I suggest that if you keep these pointers in mind you’ll be on the way to making a sound investment choice.
The points are not complex, and I think that both established or new investors could easily consider them as a sensible way to approach their investment options.
An essential starting point is that any investment is an important financial choice that should be on a solid foundation of planning and information.
An observation I’d make about the market 12 months ago was the impression that it was impossible to go wrong if you like, a market where anyone could invest and it would always be happy days.
That’s never the case even when markets are buoyant it’s wise to take time and accumulate all the help and information you can before making any purchase because the market is always changing, and much more dynamic with many more investors than in the past.
Always Have a Plan
Why are you buying an investment property? That’s the first question I’d ask. What’s your motivation and main investment goals? You could have cash flow requirements, be taking a short-term or long-term view, buying perhaps to pass to your children or buying to supplement other forms of investment.
When you boil down and establish your motivation, the phrase I often hear is ‘know the numbers’. Know the numbers inside out from the cash you’re going to contribute, across all the finance requirements and the ongoing expenses, management and tax outcomes and that includes areas like the liability for land tax and the rules around depreciation.
Know all the costs because, only then will you be in a strong position to find the most suitable property and be best placed to access the market values.
The figures will also importantly reveal the potential rental income and help determine if it’s a good option to buy to hold for the medium to long term, or if looking at established property to hold onto to possibly renovate and resell.
Another consideration is to think about your investment strategy. Covering aspects like your time frame, location, the available services and how you might buy outside your immediate area into a different suburb, city or regional area. Also delve into the hard facts about the market that you might buy into as areas can be very different, even areas just a few streets apart.
And various aspects of location can and will impact rental returns if for example, you have sought after services nearby that might add $50 or more to your weekly rental potential, and that soon adds up.
Which leads us neatly into the wider criteria and that’s to know your area, and also the building, an understanding of the prevailing local values both sales and rentals and whatever history is available, dig deep and do not just rely upon the hype.
You could call all of this doing your due diligence. If you end up with a strong insight into the local property market, including the area’s leasing demand and history your purchase is on a sound footing.
Get Good All-round Support
With any property investment, there’s going to be a lot of money involved and while it might sound a little like self-promotion, get a good support team to work with you.
Work with a real estate agent who understands your goals, the same sort of goals we’ve been discussing here. Aim to establish links with an experienced property based law firm and finance providers or a mortgage broker.
After your purchase, you’ll be forever grateful of a good property manager, these professionals are going to have a big impact on how smoothly almost every aspect of your investment is managed and also become familiar with the building’s strata managers.
Tenancy and strata legislation has changed a great deal over the past few years and both the property manager and strata manager can have a positive influence on the relationship with your tenants. Professional standards in both areas do add value and are important and an investment property’s appeal is enhanced when it’s located in a well-managed building it becomes much more appealing when it comes time to sell.
These last few points can be summarised by suggesting that investors treat their purchase as a business, not an experiment, not a flash in the pan idea, the central idea is to plan and be in control.
A final few points I’d like to summarise with, like all markets when you have a residential property investment it’s important to appreciate there will be ups and downs, values and rents shift and that’s why having a plan and setting investment goals is a wise suggestion.
Establish how long you would like to hold the property, get good support and as much market knowledge as possible, take personal responsibility and try to avoid jumping in and out of the market with no plan, such an approach can be costly. By following these simple well founded fundamentals, then any time is the right time to buy into the market with open eyes and complete confidence.