PROPERTY INVESTMENT MAGAZINE - Getting started must be easy when it comes to property investment. You buy a house, find some tenants and start reaping the rewards, right? Well, it is a little more complicated than that and if you plan to become a property investor, you need to do some serious research and think through how any property you are looking at may work as an investment. Getting just the right combination of the bewildering factors involved can often make the difference between purchasing a good investment and a great investment. It is not enough to rely on the cliché of location, location, location, either. You must consider the return that the investment will be giving you. Is this return satisfactory when you weigh up the risks involved, and is it greater than what you would get from another property or a different form of investment? Checking the property you are considering for investment is a must. An inspection will pick up any structural problems, along with any immediate or future maintenance work that will be required. Having to spend money on major items such as a new roof or dealing with wall subsidence will eat into any profit you have made. Getting the right advice is crucial; talk with your bank, a mortgage broker, a property valuer or friends who are already investors to get a feel for the gains and pitfalls that are out there and how best to invest in property.
"The first thing I would suggest,” says Will Blake, director of the valuations division of Simes Ltd, “is to buy with the head and not the heart. The motivation is quite different between buying a house for investment and a home that you would live in yourself. An investor should carefully consider what the market rent is, and how easy the property is to let. This means looking at how much sun the house gets, the number of bedrooms, its proximity to shops, schools and universities, how modern its fittings are, is it low maintenance.” Blake says that you then need to look at the expected annual return compared to the purchase price. For example, if a $400,000 property can be rented at $400 per week, the gross return is 5.2 percent. Then, allow for vacancies, bad debts, rates, insurance costs and maintenance, and perhaps a management fee, unless you want to do it yourself. The net return is likely to be well below the cost of borrowing. The level of return you receive from a property investment is dictated by both its cash flow and its ability to generate a capital gain over the period that you own it. In recent times, many investors have been happy with quite modest cash- flow returns on their investment, as they have had good capital gain as well, if prices stabilise, all you get is the cash-flow return which is likely to be modest compared to other forms of investment. Over time, house prices tend to perform quite well as an investment, as long as the investor can wait it out. Losses can occur if properties are heavily mortgaged, perhaps combined with unexpected vacancy and a flat market. There are also the tax benefits to consider when investing. The government offers the following tax advantages for property investors:
• No capital gains tax
• No stamp duty
• No inheritance tax
• No land tax
• No financial transfer tax
As well as these incentives, investors are able to deduct the expenses associated with maintaining the property, including interest on mortgage repayments. If you are looking for advice about property investment, the Department of Building and Housing and property investment organisations and their websites can be useful, and keeping an eye on the newspapers is also helpful for gauging how much competition is out there and the rent levels in differing areas of the city or town you are thinking of investing in. Owning property that you rent to individuals or businesses can be a safe and profitable investment, but you do need to be prepared to put the time into understanding and managing the many aspects and issues of property investment if you are to have a successful experience.