Rental Property – Is Now The Time To Buy?

Last year was a strange one for the Australian property market. Property values went up in almost all locations, many rising by 20 per cent[1]. Things seem to be balancing out now however, with areas now varying on whether the value rises or falls, based on demographics, supply and demand and economic factors[2].   Even though house values may rise slower this year and be more fragmented, demand is likely to stick around. The good news for anyone interested in getting into buying a rental property, is that due to low vacancy rates, demand for rentals may see a rental increase across the country. Interest rates and income growth are looking steady for now, so all signs seem to point to rentals, as a viable investment option[3]. When making the decision to buy a rental property, below are some factors you need to consider.

Consider the Location of Your Rental Property

One of the most obvious and strategic parts of buying a rental property is the location.  Do your research on the demographic and demand of where you are considering, to see if you have chosen well. You can do this online, by speaking to your mortgage broker or real estate agent, or by speaking to people who live in or around the area. You may want to consider how close other businesses and places of convenience are to your chosen property. While some people dream of living life “off the grid” the reality is than many, if not most prospective renters will choose convenience over isolation. You will be more likely to secure a tenant quickly if your property is not only close to other businesses and community facilities, but is easy to see the ‘for lease’ sign as they drive past on their daily commute.

What is the Return on Investment on Your Investment Property?

Even though many see a rental property as a great investment, it is technically viewed as expenditure. So, when you are spending your hard-earned money on a rental property, you will need to work out your return on investment. It is important that you do the numbers and work out whether the purchase is worthwhile and will turn a profit. This would also be a perfect time to sit with your mortgage broker to get the right home loan package to suit your situation. If your property in mind is indeed looking to be a profitable venture, then you will feel satisfied knowing you turned expenditure into something that pays you income and chosen the loan package that fits your requirements.

What is the Yield and Will It Cover The Costs?

Provided you have chosen a good property and you have a tenant, the cash flow should begin to come in and go out in the right ways. For example, you should receive enough rent to cover the mortgage, as well as any ongoing maintenance costs that will most likely occur along the way. It is crucial to get to know how this works, so that you can better understand how your financial assets and liabilities operate for you personally. It is important to understand this before you even purchase a property, to make certain you have chosen a property that you can afford, along with all the added maintenance and ongoing expenses such as air conditioning, plumbing and electrics. Basically, anything agreed upon with the tenant regarding ongoing maintenance, needs to be carried out and maintained for the safety and wellbeing of your tenant.

Be Realistic About Risks

You may as well face it, when it comes to buying a property, risks will always be a factor. Knowing this and analysing exactly what are the possible scenarios are is important to manage your risk and be prepared. The risks vary, from property damage, tenants not honouring their contract, even fire or floods, or even the property market taking a dive. Speaking to your financial advisor about the potential risks of property investment will help you have proper strategies in place to manage what may be around the corner.

Investing in property for rental income is a great, physical way to see your money work for you. While it may not suit everybody’s situation or objectives, it is worth speaking to your financial advisor to ascertain your investment needs and consequently, speaking to your mortgage broker to make sure your loan and purchase is set up right.

For mortgage advice on your rental property get in contact with Watson Mortgages and let us find you a competitive rate 0240381623.

 

 

Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Licensing Statement: Credit Representative 525053 is authorised under Australian Credit Licence 389328.

[1] Data sourced by Yahoo Finance https://au.finance.yahoo.com/news/where-property-market-heading-005124343.html

[2] Data sourced by Yahoo Finance https://au.finance.yahoo.com/news/where-property-market-heading-005124343.html

[3] Data sourced by Yahoo Finance https://au.finance.yahoo.com/news/where-property-market-heading-005124343.html