Starting your property investment journey is exciting! With this, comes a lot of important research, however, this can be overwhelming especially with the large amount of information available. The secret to getting on the front foot is simplicity and this article details 4 questions you should ask yourself when investing in property.
What is my strategy?
It’s important to establish your game plan. While this may change over time, having a solid foundation is extremely important.
Some examples of investment strategies include purchasing multiple properties across geographical locations to diversify or build a portfolio that supports your retirement. Ask yourself this: are you after high income or capital growth?
Take the time to determine your strategy before looking for a property. Ask yourself what the end goal is, and how your choice of properties can help you get there.
What should I research?
The property market is uncertain, it’s hard to know what’s happening when everyone you talk to has a differing opinion about when the market will grow or fall. You need to do your own research in order to gain an idea of what the market is doing prior to entering the market i.e. what areas are growing quickly at the moment.
The first step is understanding the location you’re entering. This will help you understand the type of return you can expect and the location’s tenant market. Looking at the property trends in the area, demand and supply, the local demographics, and employment rates are some key indicators of how the property will perform.
The second step is finding out more about the property itself. You need to ensure the property is affordable in the short term and has a positive cash flow in the long run.
What should I consider prior to taking the leap?
Mortgages are a huge commitment, which can lead to new investors choosing properties they like or could even see themselves living in. It is important to remember that this is an investment decision, which requires you to take a practical approach.
This means you are looking for a property that is likely to have a constant stream of income. Determining your ‘ideal’ tenant in your investment strategy is essential to do this successfully. For example, if your ideal tenant is a group of students, a low maintenance property may be more appropriate. On the other hand, if your ideal tenant is a small family, a property with a yard, multiple bedrooms, and practical living space could be better.
Who should I ask for help?
Surrounding yourself with a few experts is essential to your success. Ensuring you have a great accountant, and an equally great property manager is a great place to start.
Your accountant is there to help you pull as much profit as possible out of your investment property, along with ensuring your tax is as low as legally possible. Your property manager is responsible for the day-to-day operations such as finding tenants, collecting rent and responding to maintenance or repair requests.
Your accountant will help organise a depreciation schedule, which ensures that you can claim as much as you can for the fixtures, fittings, and appliances on the property.
Depreciation is the natural wear and tear of a property and assets over time. Only owners of income-producing properties can claim depreciation as a tax deduction each year and this is where the schedule comes in.
The main goal is to ensure that your property investment has been thought about extensively prior to purchasing. This can be achieved by asking yourself the 4 questions detailed in this article. If you would like an opinion on how tax effective your investment property may be, contact Link Advisors and we can guide you through all things tax.