Taking the leap into property investment can seem a little daunting at first. Everyone keeps asking whether or not you are investing for cash flow or appreciation and you are secretly just hoping to build a property portfolio that can develop and grow.
The truth is, there is no sure fire way to know whether or not a property will make you money. Sure, there are people who get lucky but then there are people who put time and effort into researching and understanding the real estate market (hint: be one of those people).
One of the most obvious ways that you can tell whether a property will make you profit in the long term is to look at whether or not the suburb has experienced significant growth in the last few years.
For example, if a house that sold previously for $300,000 five years ago and now is valued and being auctioned for $500,000, you can be pretty certain the suburb is going through a bit of a boom.
- Is the boom likely to continue
- Is it on the decline
- What are the comparable sales in the same area
Another way to sort out whether a property is going to make or cost you money is to figure out your income and expenses. Generally, non-mortgage related expenses account for about 50% of the rent you earn.
So, if the rent is $300 per week, other expenses like maintenance will be about $150 a week. Now obviously this is just an example and weekly you won’t be forking out extra cash to pay for light bulbs but when a big bill comes up (like the monthly strata fee).
Being on top of your expenses will mean in the long term you aren’t forking out money you don’t necessarily have for a property that you aren’t making a profit on. You want to make sure that every dollar you spend on the property is going to help make you more in the long run.
Ensuring you’re aware of this means that you are giving yourself a better chance at making money from your investment.
Another rule to add to your repertoire is the 1% rule. Now even though this is a term used globally, it’s still relevant to the Australian market. It is a quick and easy way to figure out whether a property is worth purchasing as an investment. The theory is that the monthly rent you charge should be 1% of what you paid for the property, otherwise you won’t be getting any cash flow.
Keeping an eye on the forever changing real estate market will also mean you are on top of things and don’t fall behind or get lost in a sea of auctions. Talk to us today about your options for an investment property loan and out tips for picking the right property.