How To Choose The Right Investment Property

With interest rates at an all-time low, 2015 may be a great year to purchase your first investment property. It’s an exciting prospect and it’s a great way to build wealth for your future. But how do you make sure that your investment will return a profit and leave you better off? Not every property makes a good investment, so here are a few things to ask yourself about a property before you make a purchase.

 

Is the property the right price?

The first thing you need to consider when purchasing an investment property is your budget. How much you have to spend will help to determine the type of property you can purchase and the most suitable locations to begin your search. Talk to us before you start and we will help you crunch the numbers to determine an appropriate budget. Plus, this will give you more confidence when you’re negotiating on price!

It is also very important that you avoid paying above market value for any property you choose. Before you purchase a property, you should carefully research its value by comparing recent sale prices of similar homes in the area. When performing this exercise, it is important to compare like to like to get an accurate figure and be sure you’re not paying too much.

To be on the safe side, you could also get a valuation from a professional property valuations expert. Ask us about this ahead of time and we can assist you with the appropriate referrals.

Savvy property investors go to great lengths to locate properties they may be able to obtain for less than the market value. Some ways you can do this include:

– Negotiating on properties that have been passed in at auction
– Looking for properties that need a quick sale due to death or divorce
– Attending mortgagee auctions where the bank is controlling the sale
– Finding properties with defects that can be quickly and inexpensively repaired.

Will the property go up in value over time?

Capital growth potential is one of the most important factors when you are considering which investment property to purchase. The more a property goes up in value, the more profit you will make when it comes time to sell. Capital growth potential is determined by a number of different factors including location, future housing supply in that area and demand for the property by potential tenants. So, what do these mean?

Location: it is best to consider properties in a location that will be highly sought after in the future. You may look at suburbs that are close to the CBD, suburbs that are entering a growth or redevelopment phase, or ones that will always be in high demand because of popular schools – again, thorough research is really important here. Locations that will be attractive to potential tenants and home buyers often include features like:

– Proximity to work and industry
– Proximity to schools and universities
– Easy access to public transportation
– Entertainment, shopping and leisure facilities
– Parks, scenery and general atmosphere.

Supply: try to choose a property where there will be a limited supply of this kind of property in the future. For example, if you are looking at purchasing an apartment, how many apartments will be built in the area moving forward? If the type of property you purchase is popular with tenants and in short supply, it is likely to experience good capital growth. However, if there is an excess of similar properties on the market in the area, capital growth potential may be limited and the value of the property may even go down.

Many locations are currently experiencing potential oversupply, particularly where new housing developments, apartments and units are being built. You can research future developments in the location you have chosen with the local council.

Will your investment generate a high enough rental yield?

When choosing an investment property, it is important to consider how much rent it is likely to yield. This is a very important factor, as you will probably need to make sure that the rent will cover, or contribute to, the costs of your mortgage, property management and ongoing maintenance.

To make sure your new investment property will be affordable, you can research the likely rental yield with local real estate agents and property management companies. They will be able to give you a fairly accurate estimate of the rental value of the property by comparing it to similar properties in the area. If you check with a variety of local real estate agents, you can discover how many similar listings there are in the area, how much rent tenants are prepared to pay and the average time that properties remain vacant.

With your first investment property, as with all investment properties, careful research is the key to success. When you locate a property that you feel may be suitable, be sure to take the time to investigate its financial viability before you move to make a purchase. Additionally, if you come and see us ahead of time and obtain pre-approval on your mortgage, you will give yourself additional negotiating power and avoid wasting time on properties that do not fit your budget.

If you are considering making a property investment purchase this year, please let us know. We’ll make a time to get together to go over your finances with you and help you get everything set up and ready to go before you start your search. So why not give us a call today?

ABN 62 953 405 689, Australian Credit Licence Number 391715

What Documents Do You Need To Apply For A Home Loan?

Applying for a home loan can be life-changing and that makes it a big decision. Whether you’re looking to buy your first home, upgrading to a larger home, investing or even refinancing, we’re here to help make the process of getting the loan that’s right for you simple and easy. To help you sail through the process, we like to make sure you know up front what will be required.

Here’s a handy list of some of the standard documentation you will need to have before you apply. Documentation requirements may vary from lender to lender, so don’t worry – when you apply for your loan we’ll help you make sure you have everything you need!

100 point identity check

No matter what kind of home loan you are applying for, you will need to provide proof of your identity as the first step in the process. As your credit adviser, we are legally obliged to perform a 100 point identity check, which will require you to produce two of the following identification items:

– A current passport
– Your driver’s licence or other photo identification like a university identification card or a proof of age card
– Your birth certificate.

If you do not have two of these documents, you could produce one of them plus other documentation that proves your identity instead. These may include your Medicare Card or a Citizenship Certificate. If you need clarification about your identity documents, just ask us.

Proof of income

This step often sounds much more complicated than it actually is. If you have a full time job, proving your income is as easy as providing your most recent PAYG payslip, as long as it includes your year to date income for at least three months. If your payslip doesn’t provide this information, simply collect three consecutive previous payslips, or your employment contract, an ATO tax assessment, a PAYG summary from your company paymaster, or a professionally prepared tax return.

If you’re self-employed or running your own business, simply provide your individual tax return and ATO assessment notices and your basic business financial documents. These would include at least one year’s tax return for the business (lenders sometimes ask for two year’s assessments, but this will vary from lender to lender), BAS statements, your profit and loss statement and balance sheet. Any other documentation that proves your business income could be useful, so ask your accountant if there’s any further documentation they can provide.
If you have other sources of income besides your job or business, you should provide evidence of these too. If you already own an investment property for example, provide the current lease, a tax return listing the rental income or a letter from your property manager or leasing agent. If you own shares, you can also provide a statement, investment record or a tax return that details the income.

Proof of assets

Your lender will require some proof that you’ve got your deposit in order and are in a good position to service your new loan. You can provide this evidence simply by producing your bank statements. Additionally, if you have other assets, it will help to provide details and values of these too. Make a list of your other assets including your car, stocks and shares, savings accounts, term deposits and property investments and provide whatever documentation you can to determine their current values.

An accurate assessment of any debts and ongoing expenses

Lenders assess your creditworthiness on the amount of money you already owe, your ability to repay your debts and your capacity to take on more debt. Paying down any credit card debts or personal loans prior to applying for your mortgage will improve your borrowing capacity and give you the best chance of loan approval when you apply.

To help the lender make a fair assessment, you should provide evidence of your weekly outgoings and expenses. You should also provide recent statements for any credit cards, store cards, personal loans, car loans or any other debts that you may have.

What if you’re refinancing an existing loan?

In addition to the above documentation (if it is not already on file with us), if you are refinancing an existing loan, you will need to provide documentation relating to that loan. For example, you will need to provide the last three month’s loan statements plus provide the current payout figure for your loan and document any exit fees. (We can help you determine your exit fees on your existing loan if you’re not sure.)

If you have any questions about the documentation you will require to apply for a home loan, please don’t hesitate to talk with us about what you may need. Remember, we’re here to help make the process as simple and easy for you as possible. We’re also here to help you get the most competitive loan for your needs, so if you are considering making a property purchase this year, just call us to get started.

ABN 62 953 405 689, Australian Credit Licence Number 391715

Houses Vs Apartments – Which Is The Better Investment?

It’s a debate that’s been raging amongst property investors for years – which is the better investment, a house or an apartment? Median price growth over the last ten years would suggest that houses offer a slightly better capital growth rate than apartments, but the difference is so slight that this would hardly sway your opinion on what to buy. So where do we go from here – what’s the better investment in today’s market?

Is the value really in the land?

Many people who swear by their strategy of only investing in houses reason that they do so because land is the most valuable part of the asset. But the truth is that land value is also an important consideration when purchasing an apartment.

In both cases, land value is largely determined by the location of the property. The closer to the city the property is located, the more likely the land value will increase over time. Land values in inner city areas tend to rise more consistently than those in outer or rural areas, so these are important considerations when you are trying to decide what to buy.

Houses have their own land and this can offer the option of future redevelopment and add to the potential resale value. But this isn’t true in every case. You need to consider the location of the house to see if the land will make a significant difference to the eventual sale price. 

On the other hand, apartments in the right location will always be highly sought after. Inner city land is more frequently occupied by apartments than houses – and that’s often where the greatest growth potential in land lies. Whilst you do not own the land outright when you purchase an apartment, you do own a share of it, and this can potentially increase the value of an apartment more than for a house that is not so conveniently located.

Consider the costs of holding an investment property

When trying to decide between investing in a house or an apartment, other things to consider include the cost and hassle that goes with maintaining your investment. A house with land requires a lot more effort to maintain – you’ll constantly be mowing lawns and caring for the garden and this can prove to be quite expensive over time. 

Apartments are considerably easier and cheaper to maintain in this respect. Any garden areas are usually common areas and as such are maintained by the body corporate. Whilst you do have the expense of body corporate fees, the body corporate is responsible for much of the maintenance that goes with owning an apartment and saves a considerable amount of money and inconvenience for investors.

In addition to a garden, a house often has higher maintenance costs all round. Unlike an apartment, you are solely responsible for all of the costs involved. You will need to maintain both the interior and exterior of the house, the roof, fences, garden, driveway and more. Whereas with an apartment, most of your ongoing maintenance costs will be on the interior of the property.  

Choose a property that will be popular when you rent or resell

Over the past ten years, national median house prices have increased by 81 per cent and national median apartment prices have increased by 72 per cent. But these figures probably don’t show you a very good picture. In every market, there have been cases where apartments have clearly outperformed houses and vice versa. 

There will always be demand for both houses and apartments. Some people, particularly families, will prefer a house. Others will prefer to live in an apartment. The trick to successful property investment is to do extensive research to assess each opportunity on its individual merits.

Smart investors look for two key financial drivers when selecting an investment opportunity – rental returns and capital growth. Choosing a property in the right location can be an important factor in providing both these elements of a good investment, whether it’s a house or an apartment.

Locations close to the city, business districts, employment centres, education facilities, entertainment and transport are always highly sought after. This makes them easy to rent and easy to sell. Apartments in these areas often provide a more affordable entry point and could offer a better investment opportunity than a house of the same price in a much less desirable location. The most important thing is doing your research to determine which investment option will give you the best returns.

Whether you’re planning to invest in a house or an apartment, we’re here to help you with the financial considerations involved and help to ensure that you’re making a good financial decision. We’ll also help you structure your finances and get the right loan for your personal circumstances and financial goals. So don’t procrastinate another minute, if you’re considering making a property investment in 2015, give us a call!

 ABN 62 953 405 689, Australian Credit Licence Number 391715