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Tips For Buying An Off The Plan Investment Property
Buying an off the plan property can be a great way for first time investors to get into the real estate market, as well as a fantastic way for existing property investors to build a portfolio for the future. There are so many advantages to considering an off the plan apartment rather than an existing property, however there are a number of factors you need to keep in mind before embarking on such a course of action. Getting timely, professional advice from property experts is a critical component to making the right strategic decisions and avoiding the mistakes that first time investors often find themselves making.
Property experts suggest that there are a number of tips that first time investors should consider when considering purchasing a property. These include:
Be organised about your finances. This means doing your homework in terms of your current financial position and outlook, your borrowing and repayment capacity as well reviewing the different loans from banks and other lenders. When you go to meetings with property investment companies or developers take any relevant financial material along with you so that you will be as prepared as possible.
Conduct research. Becoming an investor, or building an existing property portfolio is not simply a matter of turning up, handing over your deposit and signing on a dotted line. Being a fully informed investor means conducting research and exploring issues such as the type of property you wish to purchase, different suburbs (or cities) that are currently offering value for money and capital growth, and associated vacancy rates and demographics. Once you narrow your search to a few suitable areas, also consider factors such as transport links, shopping and schools. It is also important to do research into any developers that you may be interested in, including the track record and quality of past developments, and relationships between the developer, builder and sales agent. Many good property investment companies such as Ironfish can help point you in the right direction and give you the benefit of years of property investment experience.
Study the contract terms carefully. If you have chosen a developer’s project than the next step is to look at any contract of sale and get professional independent legal advice. Buying an off the plan property will involve a number of terms and concepts that you need to be aware of, including time frames surrounding completion of the project and what are known as “sunset clauses” which may allow buyers and developers to walk away from an original agreement at no cost if the development time runs over the planned schedule. As with all investments, there are a number of risk factors associated with buying an off the plan property including projects not being built and the finished property being different to what you expected. In these cases it is important to understand the original contract and your options.
Buying an off the plan property as an investment can be very exciting, but it can also be a little overwhelming without prior experience or without professional advice and support. One of the best property investment tips is to find a reputable and professional investment company that can give you timely information and take you through the process step by step.
Avoiding Common Mistakes When Investing In Property
People don’t often become investors in property with a plan to lose money, but unfortunately that is a more common occurrence than you might think. Experts suggest that there are a number of common mistakes that particularly first time investors make which can easily be avoided with a little forethought and good advice.
Property experts suggest that one of the biggest mistakes property investors can make is not carrying out proper due diligence on their potential purchases. This can mean not having the necessary checks completed – including a reliable valuation – which can mean that you end up paying too much for an existing property and put yourself behind from the very beginning. If, on the other hand, you are looking at off the plan property to invest in, a good plan is to do your homework and talk to the developers as well as property management experts. By the time you come to buy an off the plan property, you should know the potential value of your property once it is completed, as well as other valuable information such as the potential rental income you might make.
Another costly mistake can be not having a strategic plan in place before you become a property investor or before you think of building your property portfolio. Having a written plan – which includes your goals over the next 3 to 5 years – will help you to keep on track when you’re uncertain or to change your tactics if something unexpected crops up. If you’re buying off the plan property, your investment strategy should also include your strategy for when the property is completed, or even if you plan to sell your property share to another investor before its completion date.
One mistake that first time property investors make more than all the rest is what we’ll call “emotional purchasing”. This means that, despite their best intentions, they will see and fall in love with a property and buy it. This might happen even if the potential capital growth or income from the property does not seem to be ideal, or the property needs substantial renovation. Even if the first time buyers are cool-headed and believe that they are buying a sensible property, they may end up worse off over the long-run because of the ongoing maintenance and repair bills they are likely to be paying well into the future.
One of the best property investment strategies as a first time investor is to avoid the issues associated with existing houses, townhouses and apartments, and look instead at brand new off the plan properties. Doing due diligence on off the plan property means looking at a range of factors including viewing the building plans (and, if possible, viewing a display apartment), design options, looking at the developer’s past builds and reviewing their contractual terms. Off the plan property professionals such as Ironfish provide guidance and help with the type of appropriate due diligence needed for buying new property as well as other practical matters such as choosing the right property in the right suburb that will most likely give you the returns and capital growth you are looking for.
A Guide To Negative Gearing For Property Investors
If you’re looking into property investment for the first time you’ll probably come across the concept of negative gearing. While it can seem complex to begin with, with the right advice and with the right property negative gearing can be a very effective tax investment strategy.
Essentially the concept of negative gearing is when your costs for the property, including loan interest and bank charges, ongoing repairs and maintenance as well as capital depreciation, are more than the income you’re receiving from the property. At first glance, this can seem like a nightmare scenario for an investor, however there can be significant tax benefits from making a loss on your investments. The Australian Tax Office, for example, will allow you to offset these losses against other assessable income you might make. Another benefit of negative gearing is that the associated tax deductions mean that investors can borrow a large proportion of the cost of a property, and rent it out to cover the cost of the loan interest. This is a particularly useful for people who may have only a small deposit when they are looking to purchase a property.
There are, of course, other forms of “gearing” when it comes to assets: with so called “neutral” gearing, for example, the income you’re making is the same as the losses you are incurring, meaning that you’re not making a profit or a loss. Positive gearing means that the interest you are paying on your mortgage is less than the income you are bringing in from the property. Many property investors seek to find a property that helps them to into positive gearing territory – that is, the rent from tenants is higher than the costs associated with the property – however real estate experts often point out that these properties are difficult to buy nowadays.
Negative gearing is often considered a good investment strategy in a rising property market. This is because, despite the losses you may incur and subsequent tax offsets, your investment will be growing as an asset year after year. This can be a sensible outlook as long as the property market remains stable or rises. In a falling market, however, relying on negative gearing and capital growth can be problematic.
Lisa Montgomery, the chief executive of Resi Mortgage Corporation, believes that potential investors may be relying too heavily on the concept of negative gearing to provide them with property security, and instead should be focusing on buying the best, most suitable property for them, thereby creating real equity as an investment. When you’re looking at investment management, strategies such as paying more off the loan in a quicker period of time – thereby reducing the bank loan and interest – can help to increase and build equity over time. This equity can then even be used to purchase other properties as investments[i].
No one wants to go into property investing and lose money. Property investment for beginners should include financial and strategic advice from experts who can provide sensible solutions and ongoing help.
Property Investment – Long Term Or Short Term?
It has certainly been a rocky ride for property investors over the past few years. When you look at most types of investments, including shares, this holds true for all of them. When you’re building and maintaining an asset that provides you with dividends or rental income, watching and fretting over every dip in the market is a waste of time (unless you’re a day trader). Indeed most investment experts believe that looking at creating investment goals over a one or two year period is an unrealistic. Instead, they believe that a five or ten year plan is more in keeping with the nature of investing. They suggest that instead of speculating, investors should treat their investments as a business, with long term strategic goals in mind.
Property as an investment by its very nature is a medium to long term investment thanks to market fluctuations and issues such as capital gains tax. The beauty of holding an investment property is that, even during relatively flat periods (and according to some professionals we should be expecting the next one after 2015) rental prices tend to go up. If appropriate to your situation, you can also look into securing tax advantages through negative gearing, which helps to offset the costs of owning an investment property. Don’t forget also that eventually, if you hold the property long enough, you should reach the point at which the rent is covering or exceeds your mortgage costs and you are no longer making a loss.
Property investment for beginners should mean starting out with a sensible goal in mind – for example, are you interested in long term capital growth or going to rely on short term rental returns? With the help and advice from property experts, deciding such matters will then give you a clear way forward. Creating a proper five or even ten year plan will mean that you will be forced to be patient and become more focused on long term results and less anxious about short term dips in the market.
If you are considering entering the property market it is imperative that you find the right property that will fit with your long term plans. For example, off the plan property can be an ideal choice if you’re looking to take advantage of higher capital growth, stamp duty savings and reasonable prices. Often with an off the plan property if you’re quick you will be able to choose the best apartment in the building, ensuring you’re getting value for money. Other issues to consider include finding the right suburb to invest in – this can take months of research and analysis to find the “up and coming” areas or just to break into an already established suburb with good rental returns. Local amenities are generally the number one priority for renters, and buying an apartment that’s near schools, shopping and transport is a safe bet.
It is always a good idea to speak to an investment professional before buying a property as your first investment or considering building your property portfolio.
Becoming A Smarter Property Investor Through Technology
Whether you’re new to property investing, or are an old hand looking to build your property portfolio there are a number of free and subscription-based online tools you can use to help you research, analyse and buy property.
Read, Read, Read
The better informed and prepared you are, the better your investment decisions and choices. Most information on the internet these days is free, and one of the best property investment strategies is to become as educated you can while you’re waiting for the right property to appear or before you even begin. Property experts suggest that people thinking about investing in real estate should keep track of a range of “big picture” strategic factors such as government policy and economic growth as well as issues such as property prices and rental income. Finding information in sources such as the Australian Financial Review can be invaluable for building up a general picture of the market and its outlook.
If you use Google News, consider customizing the newsfeed to include articles on property investment or property in general (but don’t forget to ensure the articles are being sourced from local news outlets). One advantage to using online versions of newspapers and property magazines online rather than in printed form is that you can easily search for the exact information you are looking for.
Finally, there are many blogs published every week by property experts that can be subscribed to for free which provide interesting and thought-provoking commentary. Not all will be relevant to your situation, but many provide a good idea of what’s going on in the local market. You can also search online for free webinars conducted by many professionals working in property sales and management. Webinars can be a great introduction to the world of investing all in the comfort of your own home.
There are many great tools online you can use when looking for the right property to invest in. Obvious examples include Domain.com.au and Realestate.com.au. Both sites now also offer a “New Homes” category where you research off the plan property. One of the best uses of these free sites is to build up a picture of the property market over time, giving you an accurate picture of which suburbs are booming and even the type of rental income you may get in a certain area. Another useful site is Next For Sale, which provides information on buying and rental patterns within suburbs.
Online calculators are a great boon for the property investor. You can find a range of free online calculators that will help you answer a range of financial questions such as mortgage costs and loan repayments. Keep in mind that most of the calculators are offered by the banks and other mortgage lenders, so therefore their calculations for various loans and other data will vary.
The internet has been both a blessing and a curse for property investors – on the one hand research and analysis that used to take weeks or even months can now be accessed at home while you finish a cup of coffee. Important trends such as rental income in certain suburbs or apartment price fluctuations can be recorded and analysed now with a click of a button. On the other hand, many property investors complain about “information overload”, with just so much data and associated commentary that sometimes it’s hard to see the wood for the trees. This is where expert opinion can help. Property professionals such as Ironfish can help you clarify your goals and provide expert advice and help on all aspects of finding and buying the right new, off the plan property for you.
Making Property Investment More Affordable For Couples
Financing your first investment property can be a daunting prospect, especially if you are planning to go it alone without help from family members. If you are in a relationship, however, there is a way you can maximise your borrowing potential by combining your partner’s income with your own when you apply for a loan from a lender. Investment experts believe that this concept of pooling financial resources when starting on the property ladder can help give you that kick-start you need in a rapidly rising and competitive market.
A recent article* in Your Investment Property suggests that applying for a double income or joint loan if you are not married but in a relationship is a smart way to greatly reduce the upfront costs and fees associated with investment loans, as well as increase your borrowing power and your ongoing ability to re-pay the loan. It is also often the case that one person will own more collateral that can be used to secure the loan.
It goes without saying that buying an investment property with your partner can be a huge financial (as well as emotional) commitment. Investment and legal experts agree that people considering a joint or double application loan should contact a solicitor who can draw up relevant contracts – similar to prenuptial documents – or a ‘Binding Financial Agreement’ to ensure each party is legally protected in the event of a relationship breakdown or other change of circumstances. This can be a particularly important step for people who had existing investment property or other major assets before their current relationship began. Taxation expert Eddie Chung, partner and advisor at BDO believes that entering into such a financial partnership with someone means that you are inextricably entwined with them until one or either of you decides to call it quits. Having a legally binding agreement that clearly sets out matters such as buying out the other partner or what happens if one party to the agreement dies is critical to ensuring a fair and equitable outcome for everyone.
Other factors that should be decided or settled before you go ahead with the loan application include:
Having these financial aspects settled before going ahead can provide you with great peace of mind, as well as provide a steady foundation for your relationship going forward. As Homestart finance CEO John Oliver suggests, buying an investment property together can be a big step in for any couple, and can often signal the beginning of a new level of commitment between two people. With this in mind, no one wants unresolved financial issues or questions to adversely affect the nature of the relationship. The more organised you are in terms of managing the financial aspects of an investment loan, the more likely you will be to succeed in building a successful property portfolio together in the future.
How to Buy in a Hot Market
In a hot market properties go quick, meaning you need to be ready to make fast decisions when looking to buy. You may not have the luxury of time for multiple inspections, so it’s important to be clear on what you want when looking.
Property experts Rich Harvey and Gavin Hegney shared some tips on how to buy in a hot market.
The Golden Rule of Property Investment
Thinking of getting in to property investment? While there’s plenty of tips and advice out there, there’s one golden rule to stick with.
According to property investment expert Michael Matusik, you have to be in it for the long-term. This is his golden rule and knowing that property is a long-term investment is the first step to building wealth.
What to Know When Becoming a Landlord
Buying an investment property also comes with the responsibility of becoming a landlord. When preparing to buy, you’ll need to consider where the market is at and the kind of return you can realistically expect when renting a property out.
Here’s a few tips from The Telegraph to help you out:
Understand the letting market and the potential capital growth on a place. You’ll want to buy where there is a high level of rental demand and steady capital growth too.
To make your investment worthwhile you’ll want to get someone paying rent as soon as possible. If this is your first time as a landlord it may be helpful to go through a letting agent who can advise on legal matters and find a tenant for you.
Setting up a network of tradesmen to look after the property is important too. They will be able to deal with problems without racking up a huge bill for emergency responses. This is key in making your investment more profitable.
How to Stay Calm When Buying at Auction
Auctions are becoming far more common in Australia and there is plenty of competition when it comes to buying property at one. According to Property Observer, Sydney is posting 80% clearance rates, a sign of the interest in auctions.
When attending an auction it is essential that you stay calm and unemotional. Award-winning auctioneer Marcus Chiminello had some tips for anyone thinking of buying at auction:
Profile of a Single Tenant
Single households now make up almost 25 per cent of the rental market, so it’s important to have an investment property that appeals to this group — especially if the property is not particularly attractive to other demographics, such as families with children. So what do single people look for in a rental property?
Under 35s like living near the city. Whereas those with families are willing to commute longer distances in order to rent a three-bedroom house in the suburbs, singles want to be close to the action. They prefer high-density living, such as apartments and townhouses in or close to the city, and are reluctant to waste valuable time commuting long distances to work.
Buying Investment Property Near Public Transport
When you look at buying investment property, you should always weigh up its potential advantages and disadvantages, as seen through the eyes of prospective tenants. However, if the property is situated close to good public transport, then the advantages are likely to far outweigh any drawbacks.
Going green when buying property
As energy costs climb ever higher, society is becoming more green-minded and this is reflected in where we are choosing to live. Motor vehicles are major polluters, they kill and maim thousands of people every year, and congestion on our roads leads to stress, road rage and ill-health.
How To Think Like a Property Investor
Buying an investment property is not like buying a home. You need to take off your rose-coloured glasses and focus on a property’s money-making potential above everything else. There are several features your potential investment property should possess:
Any renovations that are required before you can get tenants in are coming out of your pocket, so the better condition the property is in, the more attractive it is as a potential investment. Avoid fixer-uppers, even if they are cheaper to buy, because unless you have a renovation team standing by, they will cost you a lot of money and precious time during which there is no rent coming in.
Does Your Investment Property Have a Smoke Alarm?
Most Australian states and territories now require residential rental properties to be fitted with smoke alarms. If your investment property has tenants, the onus is on you or your rental manager to see that smoke alarms are installed and maintained.
While the tenant is responsible for changing the batteries, you would still be well advised to have your property regularly inspected to ensure this is being done and that the smoke alarms are working.
This follows recent advice from New South Wales Coroner, Mark Buscombe, that even though tenants are responsible according to the terms of a lease to replace smoke alarm batteries, it would be in the owner’s and property manager’s best interests to conduct regular checks.
Sydney Leading on Construction and Housing
Sydney has seen strong growth in construction and housing with a plethora of major construction and infrastructure projects currently under track. Furthermore, the city has recorded some of the strongest housing prices in the nation. The latest figures indicate that Sydney’s leading role in the national housing market is set to continue, making it a strong for destination for investment property.
Housing Capital Growth
The latest Australian Property Monitors data indicates that apartment prices were unchanged in Sydney even as the rest of the nation saw some small adjustments in price. The affordability of apartments coupled with a general trend towards small households and higher density living has driven Sydney’s strong performance
Apartment quick facts:
Adelaide’s CBD Developments to Watch
Consistently ranked in the top ten for liveability surveys, Adelaide is a favoured destination for investment property, both in Australia and within South Australia itself. Recent private development projects and government initiatives have further raised its profile as an investment destination to watch. Most recently, draft masterplans have been released for Rundle Mall and the riverbank precinct.
Rundle Mall Development
Rundle Mall is the most visited site in Adelaide with 24 million visitors every year. Long considered to be the premiere retail area in South Australia, the Mall is currently undergoing development for a multi-storey $385 million retail complex named ‘Rundle Place’.
National Rental Affordability Scheme to Benefit Renters
In October, the federal government announced the outcome of the latest round of the National Rental Affordability Scheme (‘NRAS’). The NRAS is aimed at delivering affordable rental housing to low and moderate income earners over the course of a decade. In this article, we look at the NRAS and its implications for renters and investors.
At a Glance: The National Rental Affordability Scheme
The NRAS began running in 2008, when the federal government incorporated it as a major component in its $3.7 billion housing package. The main goal of the scheme is to boost rental housing stocks for low to medium income earners. In order to deliver this goal, the State and Federal governments have incentivized investors to rent out approved new properties at a discounted rent by offering them a Tax-Free payment each year for 10 years. This property investment option is suitable for many investors in relation to many approved properties all around Australia.
Under the NRAS scheme:
Investors See a Big Future in Apartments
Apartments are one of the most attractive options for price sensitive investors looking for investment property with potential for high yields and capital growth. Affordability, location, attractiveness to tenants – these are just some of the reasons for the growing popularity of apartments.
One of the key advantages of purchasing an apartment over a house is the price differential.
Australian Investors Turning to Interstate Properties
A recent report has revealed that a growing number of Australian investors are looking beyond their home state or territory when choosing investment property. In this article, we examine the trend toward interstate investment and its potential advantages for investors.
Investors Favouring Queensland Properties
According to a report by Terri Scheer Insurance, around one-fifth of its insured landlords own investment property outside their state or territory of residence. The report found that:
Perth Rents Soar as Vacancy Rates Plummet
Australia’s fourth most populous city is experiencing stunning growth in its rental market, making it a more promising prospect for investment property than ever. The latest figures on Perth’s rental activity reveals that rents are soaring and new supply is being rapidly outpaced by growth in demand.
New Supply Being Outpaced by Demand Growth
Figures released by the Real Estate Institute of Western Australia (‘REIWA’) for the September quarter have shown that new rental leases increased by 6 per cent in the three months to September.
Although new housing stock was released into the rental market rather than being sold, this additional stock was quickly absorbed by strong rental demand, with the number of properties available for lease falling by 20 per cent or from 3,600 to 2,800.
Smaller, Smarter, and Greener Dwellings for Australians
The trend for new houses and apartments in recent years has been toward buildling dwellings that are smaller, smarter, and greener. While a recent report by the Australian Property Institute found that green star commercial buildings deliver a 5 per cent premium in rent, the green trend is also catching in the residential market. Both first-time home buyers and investors seeking residential investment property are opting for compact living spaces. We examine what these smaller dwellings look like below.
1. Multi-Feature Rooms
It’s been estimated that removing household clutter can yield extra space equivalent to a bedroom or study, and incorporating clever design strategies can enhance space efficiency. Furthermore, well-designed homes can reduce construction costs by incorporating these multi-feature rooms.
Investors Rank Property Over Shares
With the gloomy outlook and weakening investor confidence in the volatile share market, a recent study has revealed that a majority of Australian investors now believe investment property and not shares is the better choice for their investment dollars. In this article, we look at how the volatility in the share market is unlikely to abate in the near future and why investors are valuing residential property above all other investment types.
Survey Shows Investors Rank Property Over Shares
The research organisation CoreData in its Investor Sentiment Research Report found that 73.5 per cent of the Australian investors surveyed expect residential property investment holdings to outperform share portfolios. This leaves only around a quarter (26.5 per cent) of investors who expect their share portfolios to perform better.
Residential Housing Leads the Way for NSW Construction
Residential housing is expected to lead the way for the NSW (and ACT) construction industry in the coming year. In this article we look at some of the trends for the NSW construction industry and how they are expected to play out in the short, medium, and longer term, with implications for property investment.
In the Past Year
Although total building and construction work done was slightly down during the second quarter of the 2010/11 financial year compared with the same quarter in the 2009/10 year.