Property has always been a smart investment choice for Sydneysiders.
Back in 1970, the average house price in the Emerald City was around $18,700 and just a decade later, that had risen to about $76,500. By the turn of the millennium, it had further increased to a whopping $312,000, while today it sits around $1.4 million!
Whether this rate of increase will continue, only time will tell. But if you are a mum from the Shire who wants to buy an investment property within the inner-city, there is a good chance that it will make you more money than superannuation and shares.
So, how do you go about becoming a property investor?
Here are five smart property investment tips you should consider.
1. Get the Best Mortgage You Can
Unless you are in the fortunate position to be able to buy a property outright, you will need to get a mortgage.
With this in mind, it is a good idea to get pre-approved for one before you actively start your search, because doing so will help you to better identify your budget.
If you use a mortgage broker, such as a Sydney CBD specialist like Get a Better Rate, you can ensure that you’re securing the most favourable deal in regard to your interest repayments and loan terms.
2. Consider the Location
You’ve no doubt heard the old saying ‘location, location, location’. However, you shouldn’t dismiss it because, in the real estate game, it is as valid a concept as ever.
When buying an investment property, it is important to remember that you will not be living in it. Therefore, you need to put yourself in the shoes of your tenants and try and work out what they would be looking for.
This consideration doesn’t just take into account the property. It should also include factors like whether there is parking for more than one car, easy access to public transport, close proximity to shops, restaurants, schools, and medical facilities, and how safe the neighbourhood is.
It is also worth finding out if the suburb in which you intend to buy is likely to benefit from infrastructure projects in the near future that could increase its desirability. A buyer’s agent could help you determine such information.
3. Type of property
The decision on what type of property you should buy will primarily depend on what amount you are pre-approved for your mortgage.
However, if your budget can potentially enable you to buy any one of a range of dwelling types, for instance, a unit, duplex or a house, then you should work out which one might be best for the suburb you want to buy in.
For example, if the suburb is known for having very good schools, it might be a good idea to purchase a family-friendly home with a back garden. Similarly, flats in suburbs that have direct and fast trains that link to the CBD might be a good way to attract city workers who have a high disposable income.
Typically, houses are more expensive to purchase and insure, and additionally, they might also need more upkeep. However, you can usually charge more in rent and often enjoy better capital growth.
By contrast, units and apartments are usually cheaper to buy and don’t need as much maintenance. Although they do come with ongoing strata fees, which could limit your profitability.
4. Rental Demand
If you intend to rent out your investment property once you buy it, one of the most important things to determine is how much demand there will be for it.
Demand per suburb is relatively easy to work out. A simple conversation with a real estate agent should provide you with some expert guidance, though you might also find this projection by the much-trusted realestate.com.au insightful.
Obviously, the more demand there is for rental properties in the suburb you want to buy in, the better. It could also provide you with a higher rental yield as overwhelming demand will help to drive up the amount you can charge for rent.
5. Rental Yield
Talking of rental yield, you’ll, of course, want to maximise this as much as possible.
Essentially, rental yield relates to how much profit your property will generate based on the amount of money made from rental income after the costs of owning and maintaining it are deducted.
For instance, if you can charge $500 a week in rent in suburb X, but the cost of paying the mortgage, council fees, strata fees, insurance and maintenance is $400 a week, then your weekly rental yield is $100.
However, if in suburb Y, you can only charge $400 in rent per week, but your total expenses are $200, your weekly rental yield would be $200.
That said, while suburb Y would provide you with more profit on a weekly basis, it is also worth determining which of the two is likely to experience higher capital growth in the length of time you have owned the property when you eventually decide to sell.
