The property market has seen a shake-up in 2020, and with new working from home arrangements, less tourism and many families left unable to pay their mortgages, more properties than expected have been listed for sale. This has seemingly opened up more opportunities to invest in the property market, but does that mean it is the right choice for you?
Here's what you should be considering before you begin.
Watch for hidden costs
The purchase price of a property is just the beginning and you can easily budget at least another 5% of on top of your offer to cover additional costs. These costs include:
- stamp duty;
- mortgage fees;
- legal fees and searches; and
- building and pest inspections
There is, of course, also your deposit to think about and it is important to remember that a deposit of less than 20% usually means you will have to take out Lenders Mortgage Insurance.
You may also need to consider the following insurances to protect your income and/or asset:
- building & contents insurance;
- landlord insurance;
- income protection;
- TPD insurance; and/or
- life insurance.
Even if you are working in a steady job with a stable income and have plenty of savings, purchasing an investment property with the intention of renting it out for residential, vacation or even commercial purposes means the next point is particularly crucial.
Consider your timing
Australia’s property market is often referred to as being cyclical and you may hear in the news that there are ‘good’ and ‘bad’ times to buy. This is generally true; however, you should look to your own personal circumstances to ascertain if it really is a good or bad time to be making an investment as significant as a property purchase.
With many families and investors unable to pay their mortgages due to a decrease in tourists, international students and general job losses, the market is suddenly flooded with properties that will make excellent investments in the long term. It is important to consider, though, whether or not you will be affected by the same problems that are causing the vendors to sell in the first place.
Can you afford to let the property sit empty for a few months without a tenant?
As all investment come with risks, it is wise to draw up a sensible budget and ask yourself if you are genuinely in a position to pay for the property from your main source of income in case you are unable to maintain a secondary income from rent.
Don’t become too emotionally invested
Buying an investment property solely because you love it or the area it is located in, as opposed to buying in a high capital growth area is almost never a good idea. An investment should be exactly that and you should be seeking to buy in an area that has the most potential, particularly if you will never reside in the property yourself.
Consider up-and-coming suburbs or regional areas that have plenty of room to grow and that are attracting young couples, families and retirees who are tired of the pace of big cities.
It is rare for someone to make money off their property investment within a short space of time, so you should ensure that you give yourself a realistic timeframe in which to achieve the type of financial goal you are seeking. For most, financial independence from the property is usually around 15 - 30 years in the future. There are exceptions to this rule, such as if you plan on flipping the property or have bought in an area where the rental yield suddenly skyrockets.
Obtain professional advice
If you feel as though you are in a position to start investing in property but want to make sure, a financial advisor can help you to understand all of the costs involved and assist you by advising on how much you should be looking to spend.