Real estate has produced many billionaires worldwide so there are plenty of reasons to think that property is a sound investment. But like any investment, it’s necessary to get well-informed before you dive in.
Your first property will take you a lot of time until you learn the ins and outs of being a landlord. If you never changed a light bulb in your house or fixed a sink, then, being a landlord may not be right for you. Cutting costs is essential in keeping the property, as well as maintain it properly. Do you have the time? If your answer is yes, you can proceed to think about the next steps.
Before even thinking to invest in a property, you need to pay down your debts. Savvy investors might carry debt as part of their investment portfolio, but the average person probably shouldn’t.
If you paid 3-4% for your home, you need to be aware that for investment properties, a bigger amount has to be placed 20%, because mortgage insurance is not available for rental properties. It’s crucial to know that rental income may not cover your mortgage payments or other expenses so you may have to use other money to cover these costs.
An increase in interest rates will increase your repayments and decrease your disposable income. Think about occupancy and the periods of time when you will not have tenants, and you need to cover up all the costs.
Only if you have a budget-friendly contractor that can help you flip the property, otherwise, you’re likely to pay too much to renovate. Extra headaches for you and a deep hole in your pockets from the start.
Overall, operating expenses on your new property will be between 35% and 80% of your gross operating income. If you charge $1,500 for rent and your expenses come in at $600 per month, you’re at 40%.
If you manage the property, you can avoid paying management costs. This means that you will have to do everything, from showing the property to tenants to collecting rent and organizing repairs, or engage a managing agent to do it for you. If you decide that it is a lot easier to have a managing agent to look after the property, the management fees you'll pay are tax deductible.
While you don't need to pay for home contents insurance, you will need to organise building insurance. This covers you for full building replacement if, say, the house burns down. If you buy a unit, building insurance will be paid from your strata levies.
Investing in property may be a great way to grow your assets, however, it is really important to do your research and seek professional help. Catastrophic mistake would be to pick the wrong investment while having high expectations and no money to backup that project. That’s why we are here to provide professional advice and support along the way. We believe in your dream and together it can come to life. It’s never too early to start planning.
For more home buying or Investment Tips Contact our Friendly Team at Blissful Real Estate Agents