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Investment Home loan

When buying an investment property you should treat it as a business decision, and buy not from the heart but from the head. Common mistakes made in investing are that people look for the same things they would want in a home, or buy in their local area so they can 'keep an eye on it'. Remember: the reason you are investing in property is that you expect it to appreciate in value.

Determine your strategy

Research the capital growth history and the potential rental income. Look into interest rate changes, how this could affect repayments and the possibility of a loss of rental income due to vacancy.

Assess the soundness of investment

Not all properties have good rental return or capital growth while others are financial goldmines. It is important to decide on your strategy before you start your search.

Negotiate effectively

Effective negotiation can make sure that you do not overpay for a certain property. Excellent negotiation at times can include supply of tenants as part of the contract

Legal advice

Sound legal advice will ensure that the contract is fully examined and approved and that any changes are allowable. A good solicitor should be an integral part of your investment strategy.

Obtain professional property management services

Professional property management frees you from dealing with tenant issues. Your property manager will be up-to-date with changes to the Residential Tenancies Act, can negotiate on your behalf and is in a position to obtain credit checks on potential tenants.

Tax Implications

Any income generated by the property will be assessed for tax. Any interest you pay on your loan, depreciation, or maintenance can usually be offset against the income and therefore lower the amount of tax being paid.

If the property is not your primary residence at the time of sale you will be assessed on any capital gain. Capital gain is the difference between the 'cost base' and sale price. (The cost base is the price you paid for the property along with any expenses when buying and capital improvements made during ownership.)

Suburb

Homes close to CBD have historically experienced the greatest rate of capital appreciation. However, this growth can vary dramatically from suburb to suburb. Areas become trendy or have greater accessibility to better public transport and highways.

Location

The strength in an property investment is primarily the location. A house with views in a leafy street in a popular suburb near all amenities is bound to be popular.

Buying in an area that is being rejuvenated with better transport links will be profitable in the long term. Buying the ideal house in the ideal suburb is no guarantee of capital growth or large rental return.

Aspect

The best aspect is a north east facing block that will receive the north sun in winter.

Access

Level blocks generally bring a higher price as occupants have little or no difficulties getting up stairs etc. Building costs are usually higher with awkward blocks.

Occupancy

Some suburbs have different occupancy rates to others and some blocks of units will also have different rates to others. Call agents in the area as if you were looking to rent and see the availablity and cost of renting in the area, if there are a large number of vacancies it might be better to chose another location.

Tenants

Good tenants can be hard to find. Good tenants on a long lease will help your cashfllow. If the property you are considering has an unstable tenancy record find out why.