Property investment is a proven strategy for building personal wealth, as it allows you to experience long-term capital growth, rental income and can have attractive tax incentives.
You’re also delivering an important social good, providing accommodation to those who may not be able to afford to buy their own homes.
However, it’s always best to receive professional financial advice before embarking on a property investment strategy so you are very clear on your financial obligations, the money you’ll need to fund your decision and what you will need to achieve to meet your goals.
To get you started, here’s six of the key issues to discuss with your planner when deciding if a property investment strategy is right for you.
- Motivation: The best purchases deliver a capital gain – that is, the property gains in value over the years. Buying only for the yield or rental income can prove a suboptimal investment if the property isn’t gaining in value.
- Supply and demand: Conduct your research to ensure you’re not buying in an area that’s about to be flooded with new accommodation. This is important if you intend to buy an apartment or condo. A new development can soak up potential tenants and drive down both rents and values in the short to medium term.
- Renovator’s delight: This is a popular way to enter the market as an investor. You’ll buy at a lower price but take on the expense of getting your property into shape. Before jumping at this bargain, ask a contractor to check what needs to be done and get a price so you can factor this into your investment strategy.
- Upgrade ideas: If you’re looking at an apartment that needs changes to make it rent-ready, check if you’ll need approval from the building’s management committee or homeowner association, or any local planning authority. They may impose restrictions that need to be budgeted for.
- Neighbors: Owner-occupiers tend to take more interest in the maintenance of the building and amenities. Ideally, renters won’t occupy more than 30% of the apartments in the building or complex.
- Be detached: Many experienced investors will graduate from apartments to houses, seeking more significant land-value gains. Be aware that land is an appreciating asset while buildings depreciate, often requiring renovation and even replacement. This is why the value of houses is usually higher than apartments in the same neighborhood.