When it comes to purchasing an investment rental property it pays to do your homework, according to industry experts.
They say there is more to it than simply purchasing a property and then handing it over to an estate agent to look after.
1. Do your area research
PRDnationwide national research manager Asti Mardiasmo says before buying, first-time potential investors should research the area they are targeting.
Dr Mardiasmo suggests they should check out a cross-section of properties, what they are valued at and how much they have been sold for over a period of time.
They should also look at the going rates for rents for particular accommodation – detached homes and apartments – in the district.
Real Estate Institute of Victoria communications, policy and public affairs manager Paul Bird agrees that it is important for would-be investors to do their research.
Mr Bird says investors looking for capital growth can concentrate on suburbs which “have performed well for an extended period of time”.
“This generally indicates sustained interest in the area by owner-occupiers and investors.”
2. Assess the property’s accessibility
“Focus on markets that are normally good letting areas,” Dr Mardiasmo suggests.
“They might be close to a university, hospital, large work campus, shops and cafes.”
They should also factor the property’s access to public transport and the central business district of their capital city.
“This is critical because most renters will make their decision based on this criteria,” she says.
3. Aim for infrastructure
Dr Mardiasmo further suggests that areas where major infrastructure work is planned or has started are normally good districts to concentrate on.
“If buying an apartment, I would suggest looking at areas that have new apartment developments completed or nearing completion,” she says.
“If you focus on the older apartments you find that the sale price of the new developments drags up the price of the older apartments over time.”
4. Take a long-term approach
The PRDnationwide spokesperson says investors should always take a long-term view of the investment – a minimum of seven years and preferably 10.
5. Beware of taxes
Dr Mardiasmo cautions that first-time investors need to be aware of the financial implications of owning a rental property.
“If the income from the renting of the property exceeds the outgoings such as interest and council rates the buyer could have to pay extra income tax,” she says.
“Once purchased ensure you are claiming full tax deductions – including depreciation. If it is negatively geared, then it will reduce the income tax the purchaser pays.”
The research manager says investors will have to pay capital gains tax when the rental property is sold.
“Capital gain is charged at your normal marginal tax rate on the profit made during ownership. However, if the investment is held for more than 12 months, the gain for tax purposes is halved.”
Other taxes such as land tax in some states may also apply.
6. Head to some auctions
She adds that they should attend auctions and get a feel for potential property prices on offer.
“And if required use a buyer’s agent to help gain a better understanding of local lifestyles,” Mr Bird says.
The REIV spokesman says such an approach should give potential investors more confidence to tackle the property market.
This story was brought to you by The New Daily using data and other information from its real estate content partner, realestateVIEW.com.au.
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