Real estate prices are on the rise, and a shortage of rental properties makes it a prosperous time to invest. Before making the leap, take time to develop a winning strategy to ensure that your investment properties will be as sound as they are profitable.
Property is a long-term investment. Home prices go up and down. You’ll need to cover initial investment costs, make repayments on the loan, weather the cycles of property prices and tenancy changes, and make sure there’s enough money to cover expenses, even when rental properties are vacant.
Tax-Savvy Investing
When property income exceeds expenses, or rising house prices allow for increased rent, your earnings will be taxable. Should you decide to cash in on rising property prices by selling, you’ll owe capital gains tax on the profit.
Should mortgage payments and maintenance costs exceed income on a property, the net loss can be applied to other income to reduce overall taxes. Annual interest and maintenance costs on investment properties are also tax deductible.
The Informed Investor
Keep up-to-date about real estate prices and market developments in your area. Take time to research typical rental yields, service costs and availability, and average house value increases over the last few years. The Real Estate Institute of Australia is an excellent resource. Doing your homework will help you to choose the most profitable properties.
Investing With Equity
If you can manage the repayments, using the house value equity from another property is one way to start investing. Equity from a current property can give you a significant deposit and reduce your new mortgage and interest costs considerably.
Investing With Partners
Real estate can be purchased jointly to reduce individual costs. You can even divide the expenses unevenly so that all partners can invest according to their resources. Those who invest more will own more value in the house than those who invest less.
If you choose to invest with others, be sure to have your solicitor draw up a contract to clarify who pays what and for how long. The contract should also define how much stake each investor will have in the house value after the mortgage is paid.
Finding The Right Loan
There are many mortgage products on the market from which to choose. You have the option of an interest-only loan or a principal-and-interest loan. You can chose a fixed or variable interest rate. There are 100% and 110% loans. A shorter term loan will cost less, as will property purchased with a larger deposit.
Select a mortgage with features that work with your current situation. You can refinance your loan later, especially if real estate prices rise and you want to use the equity. The mortgage market is competitive; new loan products are offered all the time. Mortgage Choice offers a free and helpful service called Home Loan Health Check to learn about other loans that might work better in the future.
Buyers’ Agents And Property Finders
Buyers’ agents and property finders are invaluable sources of information about local property prices and the most profitable real estate investments in the area. They’re familiar with home prices and can share suggestions and expertise to help you find profitable properties. Agents are also skilled at negotiating with sellers and other agents to obtain the best property prices.
Accountants And Investment Advisers
Accountants and investment advisers can help you make certain your investment is sound. They can catch details you might have overlooked and help you to plan ahead. An investment adviser can help you maximize your financial position, while an accountant can help you to evaluate whether expenses will be manageable.