Purchasing an investment property is one of the biggest financial decisions you will make in your lifetime. It can also be one of the most rewarding, being a stepping stone to securing your future financial freedom.
Below are 5 of the most important things to consider when you decide to take the step in diversifying your investment portfolio.
As everyone’s circumstances are different, this should serve merely as a guideline. You may already have addressed the below questions, or have factors to take into consideration. Whatever the case may be, this should steer you in the direction of making an informed decision.
1. What do the numbers say?
Once you have made the decision to proceed with purchasing an investment property, there are a number of key steps you need to take to ensure that you do not miss out on any opportunities:
- Deposit: How will the initial deposit be paid? Is it from savings, or will you be using available equity in your home?
- Finances: Have you begun the pre-approval process with your bank or Mortgage Broker? This is a vital step to take care of early, as you will have a better understanding of what your purchasing power is (i.e. how much you can borrow). Additionally, by having your pre-approval set up, you will be in a position to proceed with your purchase the moment you find the right property for you. This is even more important if you are using available equity in your home to cover the deposit.
- Accounting: There are multiple tax benefits which may be applicable to you when owning an investment property. Speaking with an Accountant or a Financial Planner is important to ensure that the purchase is structured in a way that is most beneficial to you (and your family) in the long term.
2. Take your emotions out of the process
Purchasing any property requires a significant financial commitment. However, it is important to treat the purchase of an investment property is similar to how you would make a business decision. The questions you need to ask are: What are the expected returns? What are the expenses? How does the property line up with your objectives?
Remember, not to purchase a property for you to live in, but an asset which will diversify your investment portfolio and will increase your future wealth.
3. New vs. Established
There are pros and cons for purchasing both – a new property and an established one. However certain benefits are applicable to a new property that are not available on an established one.
This has to do with the tax benefits of depreciation. This refers to the useful life of the fixtures and fittings inside the property, and not the land or the property itself.
Owning a new property also has other advantages. A brand new property usually requires no or minimal upkeep, thus reducing your expenses. Another benefit is a 6 year builder’s guarantee, which means that any structural repairs, if needed, will be rectified by the builder and you will not incur additional expenses.
4. Factors to consider when making a decision
As has already been mentioned, purchasing an investment property should be treated as a business decision. For example, you may not wish to have your own home in a particular suburb, but if the data suggested that the capital growth and rental demand in that area are strong, would it not be a sound investment decision to purchase an investment property in that area?
There are many sources where you can access such information (with Quicksilver Projects being one of these sources, of course!) that can assist you in making an informed decision.
I am sure you hear a lot of information about the property investing, and often the information is conflicting. Some will tell you to buy, others to wait for the market to bottom out and then buy, while others will say property investment is too risky. One thing is clear – no one has a crystal ball and can say with 100% certainty when is the best time to get into the property market. All we can do is to look at the statistical data, which indicated that in the last 150 years the long term trend for the property is up. There have been ups and downs along the way, buy the overall trend is still up and continuing doing so.
So the most important thing to consider is check your financial position, and get into the property market as soon as you are able to.