OPINION: WHETHER for my own portfolio or for clients, I have been searching for, negotiating on and renovating investment properties for almost two decades. In that time, I have identified a number of rules that I follow to ensure the best returns from any investment.
Whether you are looking to purchase an investment property or add to your portfolio, these tips can help you make an informed decision:
· Choose property that will grow in value. Well located properties close to the CBD, beaches, schools, public transport and leisure facilities are more likely to grow in value in a good market and to hold their value in a down market.
· Choose property that’s attractive to tenants. It should be clean, have good-sized bedrooms, off-street parking and good positioning away from noise and main roads. You will attract tenants by selecting a property that suits the needs of the majority of people in the area, and a tenanted property means a reliable income stream.
· Buy blue chip. Cheap properties are cheap for a reason – there is little demand and plenty of supply. Generally, it’s worth paying market value for a good property in a top suburb rather than paying less for a property that nobody really wants.
· Create instant equity with renovations. Quick, low-cost renovations such as a paint job, recarpeting, tidying the garden, painting the fence, installing new curtains or blinds and replacing kitchen cupboard doors can have a significant impact on the value of your home. For every dollar you spend on renovating you should be aiming to get at least $1-2 back in the value of your property.
· Refinance your property to create a buffer. When your property grows in value, refinance to create an emergency ‘buffer’ zone. This will ensure you can continue to make mortgage repayments even if you lose your job. Don’t find yourself in a forced-sale position as you won’t get the best price and it may trigger capital gains taxes and other expenses.
· Re-sign your tenants. Hire a professional property manager to ensure you get reliable tenants and that they pay a good market rent. Consider tying your existing tenant down to a new 12-month agreement. This will help guarantee your rental income.
· Get an independent valuation before you buy. Most buyers get emotionally involved when buying property and often pay more than the property is worth. By investing a few hundred dollars in an independent valuation, you can almost guarantee you will never overpay.
· You don’t have to sell to profit. Many investors think they need to sell to realise capital growth they’ve gained in a property but that incurs selling costs, taxes and often re-buying costs. Refinancing allows you to access the profits, while still keeping the appreciating asset. It works similar to a reverse mortgage.
· It’s all about time in the market. Many people try to wait until the market is at a low before buying. Long-term investors know that timing the market is for speculators not investors. If you can afford to buy and hold on to your asset, now is always the right time to buy.
Most importantly:
· Build a team of professional advisors. You’ve got to spend money to make money so rather than trying to find the cheapest advisors, choose the ones that give you the best advice. Spending a bit more upfront can make a difference of tens of thousands of dollars in the long term. To start with, every investor needs a good accountant, mortgage broker, financial advisor, valuer, building inspector and buyers’ agent.
By Chris Gray. Chris Gray is CEO of Empire which builds property portfolios for other people – searching, negotiating and renovating on their behalf. Chris hosts “Your Money Your Call’ each Friday on Sky News Business channel, where he interviews various heads of property research and major industry figures.
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