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Building your property portfolio
According to BRW’s 2015 Rich List1, more than a quarter of the country’s 200 richest people make most of their money in the property sector. And despite the current boom, there are still opportunities to build your investment property portfolio. Start with this quick guide to investing in Australia’s property market.
Stick to your budget
How much can you afford to spend on your investment property? As well as the purchase price, there’s the cost of maintenance, property management fees, strata levies and landlord insurance. You may also have to renovate to attract a tenant.
Before you buy, make sure you’re comfortable with your current debt levels, and have a buffer to allow for any periods where your property may be untenanted. Unexpected costs can also arise, such as a sinking fund plan for a strata building.
If you already have a mortgage on your own home, you can use your equity to fund the deposit for your investment property – typically up to 80 per cent of your home valuation minus your debt.
Negative gearing comes with a cost
Property can be a good long-term investment option as part of building your retirement nest egg – and it also comes with an attractive tax advantage if your rent doesn't cover all the costs of your investment (including your interest repayments). This is called negative gearing.
However, negative gearing basically means your investment is impacting your cash flow every month – and this could lead to financial stress if you don’t have a comfortable buffer.
According to BRW’s 2015 Rich List, more than a quarter of the country’s 200 richest people make most of their money in the property sector.
Finding opportunities for growth
You’re not buying somewhere to live, you’re buying an investment – so take any emotion out of the decision. First, work out the expected returns – income plus capital gain – as this must exceed your borrowing costs over the long term.
Then look for the features that will appeal to renters, such as close proximity to transport, schools and shops. Areas with universities or hospitals will always have strong demand. Find out what other developments are in the pipeline, as they could impact future demand and amenities – and if you're not familiar with the area, it’s worth getting advice from a buyer’s agent.
Finally, make sure you ask your bank to pre-approve your investment loan before you start hunting.
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