With low vacancy rates in rental properties around Australia leading to higher rental asking prices, you might be wondering if now is a good time to buy an investment property.
We have determined six questions to ask yourself as part of the decision-making process, with help from a Ray White expert.
1. Can you get a home loan?
Your ability to qualify for a loan depends on your unique circumstances. House prices have increased across the board, meaning you may need a bigger loan to get into the market compared to previous years. However, this could also mean you have greater equity in any existing property you own. There could also be other ways to get an investment property with less than a 20% deposit.
2. Where do you want to buy?
Australia is not one big property market; rather, it has lots of different markets, where prices and rents perform differently. This is something you need to consider during your due diligence.
According to Ray White Chief Economist Nerida Conisbee, ”where and what you buy right now can lead to dramatically different investment outcomes even in the short term”.
Consider the past performance (though keep in mind this does not determine future performance) of real estate in the area and also upcoming plans for infrastructure that could impact prices.
3. What’s your strategy?
Ms Conisbee said there’s generally a trade-off between capital growth and yield: a property that delivers more of one will generally deliver less of the other.
“Investors typically concentrate on capital growth, however, rental yield is equally as important, particularly if you’re looking to hold long term,” she said.
You can also run the numbers to understand whether you are likely to be positively or negatively gearing the property and speak to your accountant or financial advisor to understand how that fits within your overall tax and financial strategy.
4. How long will you hold the property?
Real estate is often a longer-term play. While there may be opportunities to flip a house, the ongoing shortage in tradespeople and higher building costs can make renovations a bit slower and less cost effective. Being able to hold a property for the longer term can allow time for the property to increase in value and return a larger profit, particularly to ride out any property cycles.
5. Can you afford potential time between tenants?
When you run your calculations based on weekly income from tenants, it is also a good idea to think about how you could manage some time in between. There may be times when the property is vacant between tenants, which you would need to cover financially.
6. What are your other options?
Investing in property is not without risk. But other asset classes also have downsides. ”Shares are highly volatile, putting money in a term deposit yields very little return and alternative investments such as Bitcoin are seen as even higher risk than normal,” Ms Conisbee said. Weigh up the risks to determine what you are comfortable with.
