That $200 hat you bought in an awkward country phase – and you wore once? Bad investment.
Real estate on the other hand can offer a relatively good investment. Growth is generally steady year-on-year and there is always a market for good properties in prime locations.
Of course, it does come with risks. Like any real estate market, Australia’s is changeable and capital growth is never guaranteed. Rental demand can change as broader factors ebb and flow. What affects properties in your neighbourhood might be totally different from what’s happening across town or interstate.
Those risks are minimised when you diversify your portfolio. We’ve got some pointers you’ll tip your ($200) hat to.
Location, location, research, location.
If you’ve been wondering where to buy an investment property, the answer is, “Do your research.” Rather than investing where you live, you might explore growth opportunities in other locations. Buying in a ‘hotspot’ can be tempting but check out the ‘sibling’ suburbs for up-and-comers.
Major cities will always have a decent claim as the best places to buy investment properties. Head out for a day trip, though – satellite towns are also worth a look. As residents are priced out of Sydney and Melbourne, they may turn to other business centres like Newcastle and Geelong.
Spend some time immersing yourself in the area, attending auctions and open inspections to get a sense of local interest, and studying other rental listings for market values.
Look for: areas with a growing population, strong transport links and great local amenities.
Consider multiple property types.
The right spot is likely to have an impact on the type of property you should consider. If you’ve chosen an inner-city suburb with multiple public transport options, an apartment might give you the best return. If it’s a regional town on the coast for you, consider whether you’re more likely to attract holidaymakers or permanent residents.
You might also think about commercial property. Retail stores, warehouses and office spaces can all make sound investments and offer a new string to your portfolio bow.
Look for: insights into how people in the area live.
Don’t put yourself under financial stress you can’t handle.
Investment properties will always come with some stress. What if a hot water unit needs replacing? What if tenants leave it in poor condition? What if the roof caves in and a family of bats come for you?
Make sure you have some contingencies. Start by choosing a loan that fits your needs, with a competitive rate and features you’ll actually use. Landlord’s insurance can also help with unplanned expenses.
You might even think about splitting up your budget. One $800,000 property might tie up all your capital, while two cheaper properties may give you an easier way to liquidate if you need to exit unexpectedly.
Look for: fees, taxes or other traps and a competitive loan with flexibility.
Plan for changes to the market.
As with any loan, changes in interest rates can have a serious impact on your investment property repayments. Planning ahead and leaving space in your budget could save you heartache in the long run.
If you’re investing interstate, make sure you’re across the different stamp duty and tax requirements. They differ nation-wide and you don’t want to get stung with a higher cost than you’re expecting.
In some ways, it can be helpful to expect the worst. Can you carry costs while your property is empty? Will you still come out ahead if you need to sell within the first twelve months? A sound investment shouldn’t depend on locking in top-end rental rates all year round.
Look for: a realistic buffer so your investment dream doesn’t become a nightmare.
Finding the right investment property takes determination and a clear head. Before you take the plunge, look outside of your local hub. Take a drive. Hop on a train. There’s a great big country out there, and a more diverse portfolio could be the garage-door opener to your financial security.
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.