When is a good time to invest in residential property and what are the best tips for investors?
Well here’s an interesting statistic for you– How did 85% of Australian millionaires make their fortune? Real Estate. Why? Because it has stable growth and an ever increasing demand.
Golden Rule
One of the golden rules of investment is “Buy in gloom, Sell in Boom”. Before you invest, have a look at the market. Is it boom or gloom? Another saying is, “When rates are high, it’s time to buy”.
The Two Reasons To Invest
The two reasons for investing are GROWTH- the amount by which a property goes up in value, and RETURN– the amount you receive while you own it.
The Growth Sums
Make sure you check the past capital growth of a property against similar properties in the same location. As for the return, you should be seeking at least 5% gross. Historically the best capital growth has been within 12 kilometres of the CBD. The more affordable areas of Sydney, those 20 kilometres or further from the CBD show the strongest return.
Interestingly enough areas like the Northern Beaches have shown the best total returns for investors– still close to the CBD and a bit more affordable producing longer-term capital growth.
Get Organised
Before you start your property search, a pre-approval of your loan will greatly assist you in negotiations when you find the right property. Will you save for the deposit or will you use the equity in your home?
Do Your Homework.
As with most things in life, obtain as much information as possible. Get independent advice from a lawyer, a valuer and a real estate agent– preferably one that has invested in real estate successfully.
You can find out information about capital growth, prices and rental yields in most suburbs through resources such as RP Data and Residex and magazines like Your Investment Property.
Houses Or Apartments
There are pros and cons for investors when it comes to the decision of whether to buy an apartment or a house. The gross yields on apartments tend to be better than those of a house, but the strata levies on apartments quite often whittle away the difference. There is an old saying that land appreciates whilst buildings depreciate and therefore buying Torrens Title (house and land) can be a better option.
It is much easier to increase value to a house through renovation and additions, which is not really an option for apartments. However, a modern apartment will always rent easier than a character house with “rustic charm”. This is because tenants prefer convenience and comfort over charm and character .
Whether it is an apartment or house the savvy investor knows that you make a good investment when you buy, not when you sell.
The capital growth for Sydney over the last 20 years has been:
Houses 6.94% Units 5.96%
Source Residex
Take A Long Term View
Take advantage of the cyclical booms that occur in property by planning to keep your investment for the long term. Be prepared for the highs and lows by making sure you have realistic financial goals and are comfortable with how much you are borrowing.
Property Or Shares
This is a question based purely on preference, risk and return. These are two very different investment products– both can provide the benefits you are after. For example as an investor you may ask how long will I have to wait to double my money? In the last 60 years real estate has averaged 7-9 years. With shares this increase can happen a lot quicker but you can also lose the lot just as fast.
Property has been a popular route to wealth for many Australians for many years. Sensible investment in property has many attractions. It has the potential to generate capital growth as well as return. Property prices go down, as well as up and sometimes tenants are hard to find but if 85% of millionaires have achieved their wealth through real estate– it might be worth having a look.
