When considering investing in property you should understand that there are a number of steps that need to be taken before deciding to proceed.
Talk to a financial adviser to determine your borrowing capacity and decide on your budget and try not to over commit. Talk to your adviser about the type of loan that meet your needs and look at interest rates and get an understanding of their historic movement which should give you a guide to where they may go in the future. It is important to plan for increases in interest rates and determine if they will adversely impact on your ability to make your loan repayments. When going through the figures to determine if your proposed investment is going to achieve the return you anticipate, you need to understand that your return on investment(ie annual rental) and your capital grown(increased property value) should be higher than the average interest repayments on your property. Your accountant should be able help you understand this.
You need to get a good understanding of the property market in the area you plan to invest. Read property related articles attend auctions and talk to estate agents, but the internet is the first place you should start your research to find out the following information,
- Recent sales and leasing results
- Median property prices
- Average rental return on the type of property you plan to invest in.
- Vacancy rates
- Choose a property
Deciding on the type of property (residential or commercial) you plan to invest in really comes down to your investment strategy. This is different for everyone and coming up with a strategy is something that should be discussed with estate agents and property advisers who have a good understanding of property markets across the board. Remember the more advice you can get from different sources will help you make an informed decision. When you know the type of property you want to invest in then it is time to actively pursue these properties by searching the internet for properties for sale and auction. When you find the property you are interested in and have determined the property is good value and in good condition then you will be in a position to make an offer or bid at auction.
- Using your equity
Equity is basically the difference between the amount you owe the bank and the market value of that property. For example if your house is worth $450,000 and you owe $250,000 on your mortgage then you have $200,000 in equity. Generally you should be able to borrow that amount.
Negative gearing is where your overall expenses of your investment property exceed the income you receive from that property. So any mortgage repayments, leasing fees, advertising, maintenance, body corporate fees and any other expenses directly related that your investment property can be offset by the rental payment received and any short fall can be deducted from your taxable income. Positive gearing is where your rental income covers all loan repayments and associated cost for your investment property. Any extra income generated in this way is subject to income tax. You should consult your financial adviser and accountant when it comes to all investment property taxation issues. Property investing can be a financially rewarding experience if you plan thoroughly and do research so you can make informed decisions on all of the above points. You should always get advice from qualified professionals and take advice from a number of independent sources.