Are you ready to invest in property?
OURreal estate sector is looking in better shape than it was a year ago, experts are saying.
That doesn’t mean the good times are back – it just means the market is not the bucket of slop it was last spring.
Property investors, having watched real estate values fall in recent years sometimes to below their purchase price, are understandably nervous about jumping in.
Whether you’re an experienced investor or a first-timer, here are five key questions you need to ask yourself before taking the plunge on property.
I handle a house price crash? Experts – even those at our esteemed Reserve Bank – don’t expect our real estate market to suffer the big falls felt in Europe and the US, but that doesn’t mean it won’t happen. Think abouthow you would react if your investment was worth 20 to 30 per cent less than your mortgage on it. This will help you realise if you’re ready.
Do I want growth or income? This will depend on your life stage. Older real estate investors often use rental property income to help fund their retirement, while youngsters tend to be more focused on capital growth. Properties in outer suburbs and regional areas tend to offer lower capital growth and higher income than inner-city areas, but before buying anywhere make sure you’ve done your research.
What’smyPlanBif disaster strikes? If your tenants do a runner, you can’t attract tenants, you lose your job or interest rates soar to levels you cannot afford, howwill you cope? Investors need to think about such worstcase scenarios before buying, to make sure they have other sources of income to cover the problems and prevent a forced sale.
What are all the costs? Don’t just crunch the numbers on interest rates – you’re going to have to pay other borrowing costs, council rates, insurance, land tax, repairs and maintenance, possibly property management fees, and more. You don’t get all these costs refunded at tax time, only about 30 to 40 per cent for most investors, so make sure it still makes financial sense.
What’smyexit plan? Anyone entering any