Property has long been considered a popular path to wealth for Australians. Previously it had been a case of “Pay off Your Mortgage and then Invest” Nowadays there is a big difference. Invest and payout your mortgage sooner.
You can consider a Mortgage as a “Bad Debt” because you have to pay Income Tax on your Salary before you pay Interest on your Mortgage. With geared properties, you can get money from the taxman to help to pay off your Investment. Consequently “A Good Debt”. An Investment Property is an Asset. The definition in Wikipedia is “an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies”:
Not a Hobby!
Having an Investment Property is similar to running a business. There must be a plan in place. You are not buying with your heart but from with head. It is important to assess your current financial position beforehand. What are your cash reserves and what equity do you have in your present home? Look at your long term objectives and factor in potential changes to your current situation. Are there any short term, or long term changes that can be foreseen such as loss of employment, children, or other lifestyle changes.
Think twice about investing in property markets you are not familiar with. Look for areas where high growth is expected, in other words where there is potential for capital gains.
Property experts regularly provide tips on up and coming suburbs, just make sure you are aware of any biases they may have. Find out if Myers, Westfield, Bunnings or other big retailers are building in the area. This is normally a good sign for population growth. These guys normally do a lot of research before committing to big development.
Location, Location, Research.
Look for areas where rental income is high compared to the property value
Do your research into recent sale prices to give you an idea of what you can expect to pay for the property in the same area
Find out about the vacancy rates in the neighborhood. A high vacancy rate may indicate a less desirable area. This may make it harder to rent the property and may make it difficult to sell in the future
The research proposed changes in the suburb that may affect future prices. Things like planned developments or zoning changes can affect the future value of a property. Don’t assume that last year’s boom will continue this year.