What is your strategy?

For most Australians it is nearly impossible to save your way to financial freedom so it is imperative wise investments are made to achieve capital growth and build a substantial asset base. Are you looking for predominately capital growth and tax advantages or is cash flow critical thus you are looking for an investment that has a higher rental return. Again understanding your current situation before making the leap is essential to ensure you select the right type of property that fits your personal situation.

 

What is your maximum purchase price?

It is a waste of time doing all the research and finding that perfect property only to find you can’t actually fund the purchase. Depending on the entity you intend purchasing in each lender will have different maximum borrowing amounts. It is highly recommended to talk to a finance professional to understand your maximum borrowing  power based on your current situation and possibly consider obtaining a pre-approval so you can shop with confidence .

 

What type of property and where?

• House, unit, service apartment, commercial office, industrial unit, development block, off the plan?
• Inner city, suburbs, rural and which state?

Each type of property and location has various factors that need to be considered.

 

House Advantages

• Usually larger blocks to suit families and potentially higher rental pool
• Potential development opportunities
• Possibility of higher capital growth than a unit
• Investors usually have greater control than a strata titled unit
• Banks happy to lend with minimum deposit

Disadvantages

• Due to higher prices closer to CBD may have to consider outer areas thus affecting capital growth
• To meet budget you may have to consider older properties thus incurring higher maintenance costs
• Due to above you may achieve a lower rental yield than other types of property options.

Units Advantages

• Usually closer to the CBD and amenities
• Lower entry price point
• Generally provide a higher yield than an house
• Banks happy to lend with minimum deposit

Disadvantages

• Some unit complex’s have high strata fees than can affect the net return
• Some properties can be very small and banks reluctant to lend eg <50m2
• Capital growth may be lower due to smaller property sizes than houses
• May have less control that a house

Once you have an indication of your preferred property type then it is imperative to consider following market factors:

–           Purchase Price, independent research is imperative to ensure you are paying fair market value

–           Rental yield, critical to understand the correct structure in which to make the purchase plus net cash flows

–           Vacancy rate in the area, essential risk management tool.

–           Location, proximity to schools, transport and shops

–           Percentage of rentals ‘v’ owners in the area

–           Age demographic

–           Potential zoning changes in the near future

–           Future land availability that may affect capital growth

–           Upcoming other developments that could affect vacancy rates and rental returns

–           What fixtures and fittings are included

–           Is there any extensions that require council approval

After the property is identified then the following questions need to be answered:

–           How old is the property

–           What are the ongoing costs eg rates, insurance etc

–           Does any capital monies need to be spent on the property to get it to rental standard

–           Would spending any extra funds enhance the rental return or capital growth

–           What type of tenant would be attracted to rent the property

–           How long has the property been on the market

–           Is the property being sold via an agent, private sale or auction.

–           If the property is off the plan then it brings into account other factors such as:

• time frame to completion
• deposit required now
• developer’s experience and track record
• any management agreements in place

 

Ensuring you obtain the best funding option and structure to suit your personal situation?

Regardless of the type of property or in which entity name you make the purchase in, it is imperative to obtain the best possible rates, fees and loan structure.

With rates at record lows and competition in the banking sector at an all time high it pays to shop around.

Essential factors when considering the right funding solution:

• Loan structure eg fixed variable, interest only or principal and interest.
• Do you have other loans thus have higher negotiating power
• What features are essential eg ability to pre-pay interest, offset account

Most importantly seek the advice of a qualified finance professional.