Like many people, I find myself dwelling on the thought of an investment property. You know, you buy some nice place that preferably needs no work, install a tenant who never complains and use negative gearing to make the whole thing a lovely little present for your tax return. And on top of everything else, your asset will generally increase in value over a long period and huzzah! You are a winner. So I did some research. Turns out things are not as easy as all that. Here are some things to think about before signing on the dotted line.
As with buying any property, the big number you’re aiming to save needs to be well over your deposit amount as there are extra costs in purchasing a property that need to be taken into account. Stamp duty is calculated according to the worth of your property, while registration fees and mortgage application fees can add on extra costs. If you’re borrowing more than 80% of the property’s value, you will also be obliged to pay a loan mortgage insurance. To finish it all off, there are conveyancing costs. While conveyancers are cheaper, one website I read suggested using solicitors as they’re backed by heftier qualifications should things get a wee bit dicey.
While it’s exciting to think about getting a foothold in the property market and starting to make some big investments, there are some important steps that can’t be overlooked throughout the process. The ground work now is essential to your enduring financial stability. To begin with, bring in some expert assistance about how best to structure your finances and searching out the best loan for your current scenario. Bring in a surveyor to evaluate the property and its depreciation over the period your intend to keep it. If you don’t have an accountant, now is the time to find a good one to maximise the tax benefit of your investment property and making sure your records are well-maintained.
There’s plenty of expert advice online, and even better information to be had from a good real estate agent or financial advisor. One website mentioned the big whopper of a caveat when it comes to investment properties- they don’t look after themselves. Land, apartment, houses require a lot of ongoing investment. Ideally your rent will keep pace with inflation, and eventually you will become neutrally-geared (i.e. your rent covers your mortgage) or positively geared (your net exceeds your mortgage). Don’t forget extra costs like water rates and strata fees, and the likelihood that, at some point, your tenant is going to need something fixed.
Benefits are in the short, middle and long-term. The short term benefits are mostly tax related, including negative gearing and depreciation. The mid-term benefits are based in the increase in rent due to inflation and increases in the rental market price. All things going well, and provided you can invest for a long enough period of time, the long-term benefit is capital growth.