Last month we talked about the rise of ‘rentvesting’ as a potential method of building wealth. This could be purchasing an investment property or investing in shares or managed funds whilst renting in an area that’s more to your taste. As we discussed, it’s certainly a viable concept and with increasing property prices nationally, a smart way to bolster your investment portfolio.
However, and there’s always a however. With property, emotions can creep in and, feelings like attachment and sentiment can get in the way of making the correct financial decision. When you get emotionally involved, there’s a very good chance that you’ll put your heart before your head. Not a smart way to approach things when you’re trying to make money. Remember, it’s called an investment property for a reason.
If you’re looking at purchasing an investment property then it’s worth considering the three points below.
Familiarity doesn’t always prevail
Just because you’re living in the eastern suburbs of Sydney, doesn’t mean it’s the right place to invest. One of the biggest mistakes people make is staying with the familiar and investing in areas that they’re comfortable with. That’s not to say that you’re currently residing in a growth area, but sometimes it’s those lesser-known spots that are likely to boom.
To be smart with investment property purchasing, you need to know where growth areas are, and this often involves conducting hefty research and in-depth analysis. Let’s put it this way, choosing an investment property shouldn’t be a flippant decision and often, people even consider using a buyers agent, particularly if they’re serious, lack time or don’t have the right skill set. If you choose to go it alone, then before embarking on your investment journey, become an expert in the area that you’re considering. Everything from vacancy rates, average rental costs, typical demographics right through to council spending and capital growth rates. It’s not worth investing in a four-story home, with multiple stairs when the majority of residents in the area are over 65, right?
Don’t always rely on nostalgia
Remember the days when you’d spend the day down the coast as a child? You might’ve stayed in a charming beachside cottage near the ocean and now you might be thinking, what a great investment idea. Let’s relive the memories, let’s go back to the old times. Sure, why not? Just as long as that beachside cottage is going to give you the best return on investment. Is it in a high performing growth area? Are the other options that might actually be better for what you’re trying to achieve?
Often the ‘appeal’ of an area turns potential investors off, but it can be these places that can really work hard for your investment portfolio. Okay, you might not be beachside, overlooking the harbour or promoting glamourous city living, but you’re getting bang for your buck. For example, the Sydney market is very expensive and, consequently, regional spots in New South Wales like Orange, Bathurst, Wagga Wagga and the Hunter Valley could be more viable alternatives due to the recent growth trends they are showing and their lower price points. And, according to Open Agent, the Newcastle region has recorded a median house price growth of 20 per cent or more over the last 12 months. Some Newcastle-based suburbs that have shown growth potential include Wickham and Lambton, as well as nearby Lake Macquarie – maybe being near the water can be done then.
Make sure you wear your investment lenses
Ah, that feeling of love at first sight. Yes, you get it with property too. Remember, this investment property isn’t your home (and if you’re considering it to be, then it’s probably not wise to treat it as a tool to grow your wealth in this type of plan). One of the biggest mistakes investors make is getting too emotionally involved in the property itself – falling in love with the gardens and views from the kitchen might be selling points to you, but you’re not planning to live there. Remember that. First and foremost, you should be doing the numbers – can this property produce profit both over the long and short term? And, this is just as important when renovating. Whilst the designer copper taps, black free-standing bath, and cream carpets might be beautiful touches that you appreciate, you have to ask yourself three things – “Is this a practical choice?”, “how much will it cost me to maintain these features?” and “am I getting a return on my investment?”. Spending to improve the property is no bad thing, just ensure you’re spending for the right reasons.
Ready to jump on the investment property ladder?
If you’re considering investing in property in 2020 as part of your overall long-term wealth plan, ensure that you speak with a financial adviser first – they’ll provide guidance and direction, assist with all the financial preparation as well as help source the right lending solutions. So if you have any questions or if you’re ready to start now, then speak with the Talem Wealth team today.