Shore up your investment
Regional areas can offer affordability and better future prospects for your portfolio
WANT to buy an investment property but not sure where to start? Stop viewing it as bricks and mortar and start thinking in cold hard financial terms.
That’s the key tip from buyers’ agent and Propertyology managing director Simon Pressley.
Mr Pressley said the critical mistake many would-be investors made was failing to distinguish the purpose of what they were trying to achieve.
“Investors need to look at the Australian property market as the equivalent of the stock exchange and think like a share investor rather than a property buyer,” he said.
“That means they need to understand what influences prices, and what’s likely to offer a good return.” Features versus benefits and drivers Yes, a property might have features like proximity to public transport, medical facilities and schools, but what is driving growth and ongoing confidence in the area?
“It’s really important to have information not just about a property and market statistics but to also conduct economic analysis,” Mr Pressley said.
“Property is a commodity, it is shelter. Wherever there are more jobs, more shelter is required.”
Mr Pressley suggested looking at key indicators such as industries and employers in the area, along with government initiatives which affected the economic outlook of a region now and in the future. Essential elements to watch for include economic growth, an affordable median house price and controlled supply of future housing. Critically, that meant investors should look beyond their own backyard. “A capital city doesn’t mean blue chip. Parts of regional Australia have much better future prospects and current affordability. If you close your mind to regional areas you could be missing future opportunity.”
Focus on affordability
“Every investor needs to understand all property markets go up and down, and they will continue to in the future,” Mr Pressley stressed.
“If you’re investing, ensure you do so within your means. You need to stay within your household budget and stress-test it. Factor in getting only 48 weeks rent, not 52, look at today’s interest rate and then add four interest rate rises. “It’s also wise to know your ongoing holding costs like council rates, body corporate fees, repairs and maintenance. Account for between $500 and $1000 in repair and maintenance expenses during a normal year for basics, but be mindful over three to five years there’s a chance a major item like a hot water system, stove or air-conditioner will need replacement.
“Ensuring your investment is affordable and within your means is key to being ‘safe’.” Due diligence
While affordability is critical, due diligence is also imperative, and that means seeking a property that is structurally sound. “Being structurally sound and low maintenance has nothing to do with appearance. It might look pretty, but if the workmanship beneath the surface is poor, it’s going to cost you. Call in the professionals to ensure it’s structurally sound.”
As for investments to avoid, Mr Pressley said everyday investors should leave developing to the professionals.
“Developing requires different skills to buying an established property,” he said.
Meanwhile, he also suggests investors be wary of large-scale apartment complexes.
“Whether you buy a house or an apartment it is an important decision and whether it’s the right one varies from location to location,” Mr Pressley said.
“Avoid big complexes of 30 apartments or more because body corporate fees are higher and when it comes time to sell, you can almost be guaranteed another apartment in your complex will also be on the market.”
CRITICAL EYE: Look beyond the bricks and mortar when buying an investment property.
Propertyology’s Simon Pressley.