It’s a fascinating time in real estate if you’re an investor or considering whether this is the right time to make your first move towards becoming a property baron.
Annual rent growth is pushing through the double-digit barrier because Australia now has a shortage of rental accommodation, partly due to investors selling to owner-occupiers at the top of the market 18 months ago.
But now, investors are watching rental incomes rise and detecting the first price moderations, especially for smaller family homes and apartments, two of the most popular rental property types.
The latest figures from property researcher CoreLogic show apartment rents rising by 10.7% for the 12 months to July. It detected a 3.7% increase in July alone, so there’s no sign of this trend tapering off.
For investors who prefer apartments, you’ll be delighted to know that they are outperforming houses in terms of rental growth against monthly, quarterly and annual comparisons. Aspiring landlords will appreciate this trend because apartments have a lower fiscal barrier to entry than houses.
The growth in rental incomes in the past quarter is spread equitably across the nation, with Brisbane (4.4%) leading the charge, followed by Sydney (4.1%) and Melbourne (3.9%).
These are some of our top tips, if you are thinking of investing. But always seek independent financial advice to check if this is the right move for you.
Don’t rush
A lot of money is on the line, so do your due diligence on the market and the financial impact of a purchase.
Cash flow
An essential element of that due diligence is to treat cash flow as “king”. Understand how much income you’ll receive against the repayments on your loan. You may need to top up repayments with your own money, but tax benefits may ease that pain.
Bean-counters
A great accountant is worth their weight in gold when you invest in property. There’s a lot to get your head around and many traps to fall into. A good accountant will keep you on the right path.
Get schooled
Take time to understand some of the basics of property investments, such as the implications and benefits of a depreciation schedule and negative gearing.
Be stress-free
Minimise tenant selection and maintenance problems by hiring a property management company or a real estate agency that provides this service. Talk with them before investing to understand their services and charges.
Location is critical
You must buy a property in an area that attracts renters. Selecting a property in the middle of nowhere because it’s cheap would be fatal. Services and amenities, such as schools, hospitals and transport, are the backbone of a good rental area.
Neat and tidy
Don’t get too ambitious with your purchase. You want an attractive apartment that’s accessible (that is, not up eight flights of stairs) with a floor plan that wastes no space. It should be easy to maintain and will keep your tenants happy.
Trap to avoid
Ask about any scheduled building work agreed or being considered by the strata committee. The owner may be selling to avoid a significant expense. If that’s the case, you’d be saddled with the obligation. Ask for minutes of recent strata committee meetings to understand any issues with the building, neighbours or council services.