By Nikki Page

FINANCIAL OFFICER, BUSINESS ADVISORY | ADELAIDE

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What should you research before you invest in property?

With many Australians still eyeing property as part of their wealth and retirement strategy, it’s more important than ever to make a wise investment choice. There are a few things to consider before you invest.

Do your research

Recommendations and reports can be helpful but nothing beats first-hand experience when it comes to property. Spend time in the suburbs you are researching and take note of what is hot and what is not. Are the local shops busy? Are the schools in high demand? Are people out and about in parks and playgrounds? Is there a changing demographic in the area? Are a younger generation populating the area? Remember, it’s not about whether you would like to live there, but rather the suburb or town’s ability to attract and retain others so it is important to detach yourself emotionally when searching for the right property.

Vacancy rates

Capital growth is important but so too is cash flow. Do your homework on vacancy rates and rental returns in your target market. An empty property won’t repay your loan. A vacancy rate of two – three per cent is desirable. A higher vacancy rate may not signal a poor investment – just as a low vacancy rate is no guarantee – but it does mean being prepared to cover any rent gaps if the property is vacant. It also pays to be wary of building booms. An increase in development doesn’t necessarily equal demand, so research the volume of properties in your market, and in the pipeline, against population and jobs growth. Keep tabs on property news websites and real estate research sites for useful free stats, including vacancy rates and rental yields.

 

Property location

We’ve all heard about the worst house in the best street, but what about the next best or even third-best suburb? Keep an eye on sought-after suburbs and, particularly those surrounding it. As popularity drives up prices in one postcode, it’s not uncommon for demand to eventually ripple out to one or two suburbs further. Use the current hotspots for renters and buyers as pointers to more affordable, emerging locations nearby.

What should you pay?

The saying that a property is only worth what someone is prepared to pay rings true. However, what should you pay? An independent property valuation might have the answer. We have access to RP Data which provides an indication of expected value and also expected rent depending on recent sales and leases surrounding the property. If you have found a desired property, we also have access to upfront valuations with various lenders to obtain the best outcome for you. It is important to seek advice on what you can afford to determine what you should pay for a property. We can assist with that also.

Pipeline projects

Infrastructure is key when it comes to property. Renters are looking for convenience and connectivity, which means reliable public transport, easy shopping and proximity to jobs. Ask the local council what projects are on the slate to improve access, drive economic growth or regenerate disused zones.

Capital gains vs rental return

Rent is your cash flow to retain the property, but capital gain is what creates equity and an opportunity to secure other investments. New investors should aim to strike a balance between a sustainable rental return and a steady increase in value over time.

Get your strata straight

If buying an apartment, make sure you know exactly what’s included in the strata title and have it included in the sale contract. Is there, for example, a garage, and parking space or storage facilities? Apartments also attract body corporate fees. Usually, the fancier the complex – pool, gym, plush gardens – the higher the fees. Ask to review the financials in the body corporate disclosure. This will tell you how much is in the sinking fund for building repairs or upgrades, and what projects are being planned. An insufficient sinking fund could mean owners are asked to cough up for extraordinary expenses such as roof replacement or external rendering. You should also check the disclosure for adequate insurance cover on the building and other communal assets. If underinsured, and disaster strikes, owners could be asked to make up the difference on repairs.