Real estate is one of the best ways for most Australian households to build wealth. Property investment in Australia can yield some exceptionally amazing results when done correctly. It’s not uncommon for home prices to appreciate 5-10% in one year, which is a fantastic return on its own. When you factor in rental payments, though, the performance becomes even better.
Taking a look at conventional rental markets and rates, it’s not uncommon to rent properties for around $500 a week for in-demand areas. With tax-deductible expenses, it becomes relatively easy to pay off the mortgage and take advantage of capital appreciation. Both of these aspects of owning property lead to a gradual accumulation of wealth.
If you’re interested in making a property investment in Australia, here are ten things all of us at Buy Australian Properties would like you to know!
Property Investments In Australia Are For Everyone
One of the most common myths that people have is that investing in property is only for people who already have money. A lot of people say things like, “if I had $1 million, I’d love to buy a home and rent it out – it would be fantastic income!” As such, they wait, wait, and wait until they have that $1 million. If it never comes, they never get into property!
However, property investments in Australia are fantastic ways to build wealth, even for people who aren’t walking around with bags full of money.
Let’s say you have $50,000 saved. You could leave that money in the bank. At current rates that $50,000 would be worth $53,889. That’s not much of an increase!
Now, let’s suppose you took that $50,000 and used it as a 20% down payment for an investment property. You borrow $200,000 and buy a property for $250,000. Let’s suppose that you rent it out and the rent only covers the 25-year mortgage, maintenance, and property taxes.
Property values have increased, on average, 6.8% per annum. In 25 years, when you make the final payment to the bank on your home, you’ll own it outright. If property values increase as they have historically, your home would be worth an astounding $1.3 million.
Of course, past performance is no guarantee of future returns. Still, quality property investments in Australia have given people financial stability for as long as the housing market has been around. People want to live here, and that provides property values with a boost!
You don’t need to be uber-rich to take advantage of one of the proven ways to build net worth for many fellow Australians!
Property Investments In Australia Must Be Carefully Evaluated
As we have seen, there is a lot of money to be made investing in property. The caveat, of course, to this is that you need the right property to make money. If you pick the wrong property, fall for spruikers, or pick homes that are money-pits, a well-intentioned investment can run into problems fast.
Many people who are new to investments make these mistakes unintentionally. They rely on the advice of lawyers, friends, relatives, accountants, and other professionals. They go to their accountant, for example, and he or she suggests diversifying with a rental property. While all of these people are well-intentioned, professional property companies (like us at Buy Australian Properties) tend to be able to set prospective investors up for success better than other professions.
A professional property company’s entire job is to find the right investments for clients. If we don’t do that, we don’t stay in business very long! We analyze opportunities, find quality investments before they hit the market, and we work with clients closely to achieve their financial goals. Therefore, typically, the best results come from working with a professional company.
No matter how or where you buy your property, though, it’s essential to accurately model and evaluate all aspects of the purchase before making your property investment in Australia.
Investing In Property Requires Analysis
Unfortunately, many people don’t do quite as much due diligence as they should when it comes to property investments. In the public’s mind, properties go up in value, and they collect rent. While that’s generally true, the full picture is much more nuanced.
Investing in property requires calculated risk and knowledge of a few basic terms.
- Gross Rent Yield: The amount of rent you can expect to collect divided by the cost of the property. Suppose you bought a flat worth $200,000. Suppose further that you could rent that property out for $200 per week. Your annual income would be $5,200, so your gross rent yield would be $10,400 / $200,000 or 5.2% per year.
- Net Rent Yield or Capitalization Rate: This has the same formula as the gross rental yield, but with expenses subtracted. Continuing our example above, if the property brought in $200 per week, but you had to pay $50 in expenses, then the net income would be $150 per week. The net rent yield would be $150 * 52 / $200,000 or 3.9%.
- Current Vacancy Rate: This percentage corresponds to the number of vacant properties in the area. For example, if there are ten homes in the area and one is empty, then the current vacancy rate would be 10%. Typically, a current vacancy rate of 5% or lower indicates a robust market!
Other financial terms and calculations are also vital when calculating investment quality. Of course, an experienced property investment company can help guide you through these and ensure that any investment has the best possible chance to be successful.
You Needn’t Commit Significant Time
Some people who are considering becoming landlords opt not to do so because they are concerned with time commitments. They don’t want tenants calling them up at 2 am complaining that the hot water tank isn’t working.
Merely because you invest in the property, does not mean you also have to manage it! Many successful investors hire professional property management companies that will do much of this work for them. Professional managers can market properties, field calls and complaints, and collect rent.
Having a professional company be the landlord also has some other benefits. It keeps you more anonymous. Even though you would be the owner of the home, it means that the renters don’t have to know you or deal with you directly. Additionally, it can be more inviting for tenants to know they are dealing with experienced managers who have dedicated 24/7 lines to address issues, rather than the owner directly.
If you’re making a property investment in Australia, it certainly doesn’t need to be a full-time job. For many investors, investing in property is purely passive.
Try To Ignore Emotions As Much As Possible
With investment properties, it’s vital to view them as purely transactional. When you buy your dream home, you might pay for individual preferences because it’s a place you can see yourself living in for years. For example, you might love the colours or decor. You might even pay a premium because it’s close to a school or golf course. When you’re buying a home, it’s ok to be emotional about it – this is the place you’re going to have to be happy with for years!
However, when it comes to property investment in Australia, it’s essential to be guided by math, objectives, and goals. It can be easy to get swept up in a desire to own property in a particular location or see something that looks amazing and assume that others will want it as well. The problem is that these feelings often lead to adverse outcomes.
No matter how amazing the home or flat is, if there is 20% vacancy in the area, you’re not going to be able to charge a premium for it. There’s just too much competition. Similarly, you might think that property in Sydney isn’t much to look at, but since it’s in a highly sought-after city, it’s actually worth the investment.
You should make investments with facts, not emotions, for the best results!
Depending on your finances and net worth, your first property investment should start small. You have no idea if you’re going to like owning property or if you’re going to build upon the strategy. You certainly don’t want all your eggs in one basket either, and buying a large investment home or flat that overwhelms you financially and in terms of time could be very challenging.
Like most investment strategies, starting small and building your net worth over time tends to yield the best results!
Decide If You’re Going It Alone Or Investing With Others
Some people invest in properties by themselves, while others form partnerships and pool their money to get the best results. Flippers often team up, for example, to buy a home and work together to clean it up. Even with rental properties, you can find someone to partner with to split the rental income and costs.
If you do decide to purchase a property investment in Australia and you want to do so with others, ensure that you have proper legal agreements drawn up to avoid potential miscommunications down the road. Many friendships face ruin when they disagree over finances!
Consider Your Whole Portfolio
Ideally, you should not have all of your net worth in any particular type of asset. You should have some level of diversification. Therefore, when making a property investment in Australia, consider how this investment will work in conjunction with your other financial goals.
For example, many people use these investments as sources of income that will be paid off and ready in retirement. If you buy a home when you’re 40, and that home earns $400 per week, then by the time you’re 65, you’ll be making that level of money without any mortgage! It’s a great way to supplement retirement income. Guaranteed income is a way investors can use rental properties to enhance other asset classes.
Make sure you know your investment goals and consider how this one will fit with your overall financial plans.
Don’t Try And Time The Market
A lot of property investors try and time the market. They wait until the next recession, hoping that they will score a deal on homes and boost capital appreciation on the purchase. The issue with this approach is that nobody knows when the next recession will hit and what it will do to housing prices. Some recessions cause housing to slump, while others may have minimal impact.
Meanwhile, the longer you wait, the more chances properties have to increase in value. By waiting to invest, you might wind up costing yourself in the long run!
Consider Using A Trusted Property Partner
Ultimately, buying a property investment in Australia requires a significant financial commitment. Even if you have a mortgage, you’re still looking at putting down 20% and being on the hook for various expenses, including property taxes, if you find it challenging to get tenants.
To minimize your risk and maximize your chances of success, consider using a trusted property partner that will work with you and give you the best chance of success. Trusted partners will find the best deals for you, give you straight answers, and will work diligently to find the right property opportunities for your unique financial situation.
If you’re serious about investing in property, having a trusted partner like Buy Australian Property Investment, will give your endeavours the best chance of success!
You Can Make A Property Investment In Australia
No matter how much money you have, there’s likely a path forward to owning property in this beautiful country. It’s important to note that you don’t need to have millions in the bank or find the perfect property. With investing, your best chance of success will come from having a clear financial objective and building your net worth over time.
At Buy Australian Property Investment, we have helped countless people achieve their financial dreams through property purchases. If you’re interested in investing, please get in contact with us today!