A rental property can be an excellent source of additional income, but just like your primary residence, selecting a location with long-term value is crucial.
Given the current economic climate—marked by slow growth, high inflation, rising unemployment, financial market volatility, and declining consumer confidence—there are two key factors to consider before investing in a buy-to-let property:
First, rising interest rates will increase your bond repayments, impacting the rent you charge and the affordability for tenants. Second, higher interest rates make it harder for people to buy property, leading to more individuals renting due to difficulty obtaining home loans. While this presents an opportunity to step into the role of a landlord, let’s explore the essential factors to consider before making an offer on your first buy-to-let property.
Key Considerations When Buying an Investment Property 1. Location and Property Types Identify areas where property values are either appreciating or depreciating. Factors such as district rezoning and crime rates can influence property values in specific locations.
Properties near schools, shopping centers, essential services, and major routes tend to attract more middle-class tenants. However, in areas with an oversupply of developments, you may need to lower your rental rates to stay competitive.
Research property sale and rental trends thoroughly before choosing a location. You can also download a free report on your desired suburb from our Home Services property guide before contacting an agent.
2. Identify All Costs Involved If you’re not paying the full purchase price upfront, you’ll need a deposit before applying for a home loan. Typically, this deposit is about 10% of the property’s cost, which can be sourced from savings or financial assistance from family or friends.
Additional costs include bond and registration fees, and transfer costs if the property was previously owned. If your savings fall short of the deposit, they can be allocated toward legal fees during the transaction.
For sectional title units, levies apply.
Other costs to consider are:
Rates and taxes Electricity and water Maintenance and repairs It may take some time before you see a profit, so be prepared to cover these costs during the first few years while your property appreciates.
3. The Advantages of Investing in Property Property investment allows you to build wealth without a massive upfront investment. You can finance your purchase with a home loan, paying only a small initial percentage from your own funds.
Once you secure a tenant, banks recognize this as additional income, which can help you build a property portfolio over time. A strong relationship with your bank might also enable you to purchase future properties with a lower deposit.
Over time, property values generally appreciate, meaning the value of your investment could double when you decide to sell. This appreciation also justifies annual rent increases.
4. Risks to Consider in Property Rental Tenant protection laws can make it challenging to evict non-paying tenants.
Maintenance and repair costs can rise unexpectedly due to bad weather or regular wear and tear.
It’s essential to have an emergency fund to cover periods of low occupancy, repairs, or other unforeseen circumstances.
5. Enlist the Services of a Property Rental Agent A property rental agent acts as the intermediary between you and your tenants, reducing administrative burdens such as conducting tenant background checks, scheduling regular property inspections, drafting contracts, and ensuring compliance with lease agreements.
For expert guidance and assistance with your property investments, contact Jooma Properties.