Tuesday, 29 September 2015
||Buying an investment property is an easy way to create wealth. There’s also less risk compared to the likes of the share market which can be quite volatile and hard to understand. However before you take the plunge to becoming an investor, are you really ready?
Can you afford it?
This is the most obvious question but how do you know? Costs involved with buying an investment property and becoming an investor are essentially the same as if you were buying another home. You will need to get an investment home loan to pay for the purchase of your property, plus you will need to pay stamp duty and solicitors fees.
Then there’s the ongoing costs that you need to consider like council and water rates, ongoing maintenance and body corporate fees if you buy a unit. The upside to becoming an investor is that you will be able to rent out your investment property with the rental income you receive easing the burden of these costs. It’s also a good idea to ask your lender if they can include this rental income in their serviceability when they work out how much you can borrow, with it being additional income that you are potentially going to receive you may have the capacity to borrow more.
Are you prepared for the pitfalls that come with investing?
Like with any investment there are risks, it’s making sure you are aware and have a plan of attack. For example, there may be times when you don’t have tenants in your property and you will need to cover all the costs without the added benefit of rental income.
Interest rates may be at historic lows but that doesn’t mean they won’t rise again. Are you prepared for an increase in your mortgage repayments should this occur? Again it really all comes back to knowing if you can afford it.
Are you prepared to invest for the long haul?
Buying an investment property has high entry costs, which means that you need to raise a lot of money upfront to get into your investment. To reap the rewards and see a profit you need to be prepared to wait for the right time where growth in the property market becomes evident. Buying an investment property is a long term strategy that may take anywhere up to 10 years before you start seeing some benefit.
Do you have time to do your research?
Researching the location of where you want to buy is key because not all locations will increase in price and provide strong rental returns. Giving consideration to things like vacancy rates will give you an idea if there is a saturation of rental properties in the area. You want renters to choose your property! However this might be a challenge if there’s an oversupply in a particular location. Using tools like free property reports or talking to a local real estate agent can really help you get a better understanding of the area you are looking at.
It’s always advisable to talk to your accountant or financial planner prior to making any investment decisions and taking the plunge into becoming a property investor.