A Tax Depreciation blog by Paul Bennion.
As we enter a new financial year, a growing number of people in Australia will considering buying an investment property for the first time.
It is important that first time investors take a conservative approach to their first property investment purchase and focus on buying an investment property that they can easily afford.
Property is a long term investment strategy and the old saying ‘From Small Acorns Grow Big Oak Trees’ is very applicable to first time investors who want to build a successful property portfolio.
To put it more simply, you should learn to walk before you can run in the property investment market.
It is therefore critical that first time investors should not financially over expose themselves with their first property investment purchase. Buying a lower priced property which has the potential for strong capital growth can be an important building block to building a successful property portfolio.
Lower priced properties also tend to have higher rental returns and this factor is important during a climate of rising interest rates.
Issues you should consider when buying your first investment property include:
- Spend time researching all aspects of property market before even looking for an investment property. Issues, such as negative or positive gearing, rental returns and depreciation are key matters that have to be considered by a first time property investor.
- Past trends in property values generally are an indication of future trends and therefore it is wise to examine the long-term capital growth rates of the suburb. There are a number of online sources that can provide property values trends for most suburbs over the last 10 years at least.
- Take a broad approach to buying an investment property. Most first time property investors buy a property in their local neighbourhood because they are familiar with the area. By taking a narrow approach to the location of the investment property, first time investors therefore severely limit their options.
- Try to target suburbs in lower priced areas which have a higher number of properties for sale. A simple tip is to check the internet and weekend papers and identifying areas which a larger number of advertisements.
- When you have selected a suburb, don’t make an emotional decision when choosing a specific home. Most first time investors purchase a property they would like to live in. It is important to remember that the investment property must appeal to a tenant who will be paying the rent.
- Check out any planning changes proposed for the suburb. Many local governments are undertaking reviews of zoning which could have a major impact on property values. For example, a property that was purchased for a single residential use and then rezoned by the local council, as a triplex site will increase substantially in value. The planning department of a local government can advise first time investors of any proposed zoning changes.
- Check out any planned infrastructure changes for an area you are interested in buying. For example, an upgrade of a local shopping centre or sitting of a new railway station can have a major impact on local property values. This trend occurred in Rockingham following the extension of the southern freeway.