Why high-end properties are not the key to real estate wealth

Why high-end properties are not the key to real estate wealth

It may surprise many first time investors that purchasing well-located lower-priced properties can deliver higher rates of capital growth than properties located in much more expensive suburbs.  In areas such as Perth and Brisbane, for example, you can still purchase well located properties in suburbs with a median house price of less than $500,000 that can achieve greater annual capital growth rates than properties in suburbs with a median house price of above $1 million.  First time investors should take the lead from the large number of people whose wealth has been based on buying affordable properties in well located areas.  There are literally thousands of wealthy people throughout Australia who at one stage in life bought a very affordable home as their first home and then used this as a stepping stone to create personal wealth over the long term. How to buy affordable property; Check if there are any upgrades in affordable areas to local infrastructure such as new schools, shopping centres or transport. New infrastructure can increase the value of properties by making homes in these areas more appealing to buyers.  The best areas to buy affordable properties are locations with high population growth rates. You should target affordable properties in these locations with as much land content as possible.   Make contact with a number of agents to check what type of properties are most in demand in the local area. This will give you an indication of what type of property will appeal to future buyers if you decide to sell.  Check with the local council to find out which suburbs have any future potential...
Building a property savings plan

Building a property savings plan

As property prices rise rapidly in some capital cities, the savings for a deposit on a property often represents a significant chunk of a person’s yearly income. Yet this amount should not dissuade would-be investors! Whether you already own property or are planning your first purchase, buying an investment is an achievable goal. If you’re a first-time buyer… Set a target Putting aside money that could instead go towards indulgences is not an easy task. It’s even harder when you have no clear plan or purpose. People really struggle with savings unless they have a specific goal in mind. Saving needs to be a mind-set. You really need to want to succeed. This alone will help build up your savings. Sitting down with a mortgage broker or financial adviser can increase people’s motivation by giving them a clear understanding of their goals. While five or 10 per cent deposits allow people to get into the property market faster, lender’s mortgage insurance (LMI) can dramatically add to the monthly cost of a mortgage. If you know that saving an extra $10,000 is going to save you $5,000 in lender’s mortgage insurance, that’s pretty good motivation. First-time buyers should be aware that the costs of buying go beyond just the deposit. Legal fees, inspections, stamp duty and repairs all need to be taken into account when saving. For investors, for untenanted properties, an initial vacancy period might also add to the cost. You’re also going to have to pay an agent to find a tenant. Investors who take these issues into account from the start are less likely to be hit...
What to consider when buying smaller

What to consider when buying smaller

There are benefits to buying smaller dwellings such as units, townhouses and villas as they generally required less capital to purchase and were often positioned amongst stronger infrastructure. When looking to break into the property market, there are a myriad of particulars to consider. Your list will include where and what to buy, often leading to some confusion about which kind of property will be the right fit.   How much capital Where investors can buy is often determined by how much capital they have to contribute to their mortgage. Dependent on location, a unit, townhouse or villa could be a cost-effective option for those investors looking to swiftly add a new listing to their portfolio or simply enter the property market for the first time. If you’ve got limited capital, then you are probably going to go to something cheaper which is, for the most part, going to be a unit or a townhouse as opposed to a house. However units were only good for investors so long as the strata fees are realistic and the building itself is in good condition.   Avoid the fancy stuff While investing in smaller dwellings could indeed be a cost-effective way for new investors to enter the market, this is only true so long as investors don’t aim for the “flash stuff”. Don’t aim for the “flash stuff” where there are gyms, pools and the concierge downstairs. You’ve got the associated costs with that which pushes the strata fees up.   Distance to infrastructure Employment and infrastructure are two of the underlying factors to an investment’s success In comparison to houses, units,...
The best way to become a powerful property investor

The best way to become a powerful property investor

Securing a powerful property investment portfolio can be an amazing source of financial security. But when getting started, it is vital that the right steps are followed.   Why are you doing it? Be clear about your reasons for choosing to invest in property instead of other asset classes such as shares. Some do it for the wrong reasons, such as trying to keep up with their neighbours or friends who are investing. Property investing is not a competition.   Understand the risks Just because prices have been growing consistently for a number of years doesn’t mean they’ll go on indefinitely. Growth in value is rarely consistent and linear. Precise capital growth is hard to predict. Sometimes there are vacancies or tenants that default. There are ways to reduce these risks, but they remain a part of investing in property. If the area is in high demand, discounts are virtually non-existent as vendors know they could get the price they want.   Be a long term investor There’s no guarantee that you see growth quickly. While some areas may experience rare short-term surges, the majority of suburbs go through periods of slow to no growth before values rise. Be prepared to hold your property for at least 5 years if you want to make a solid gain. Make sure you have a solid cash flow to maintain your property to avoid selling prematurely.   Learn, learn, learn While you’re building your deposit, learn everything you can about property investing. Buy a few books from a range of authors to get a variety of opinions. Once you start hearing the...
What is effective property negotiation?

What is effective property negotiation?

Property investors need to have strong negotiation skills, but when talking about negotiating the first thing that comes to mind for many is the price. Buyers love the idea of getting a bargain or paying ‘under market value’, whilst the agent and vendor are focused on achieving the highest price possible. In many property transactions the price is the most important factor, with all other aspects of the deal being insignificant or irrelevant. But in some cases, it can be the difference between a successful negotiation and being left empty handed. Be creative Buyers who are able to provide flexible settlement terms will have an edge over someone who must settle within a certain timeframe. Vendors who have already bought another property may need to settle on a specific date. Any buyer who can match their terms help them avoid bridging finance or other expensive moving costs. For vendors who haven’t purchased yet, a longer than average settlement could be appealing to give them time to find, purchase and settle on their new home. The vendor’s request for settlement terms generally gives some insight into their position, without having to ask the agent intrusive questions about why they’re selling. Another option which vendors or agents might not consider (or suggest) is the prospect of a short settlement with a lease-back option upon settlement. This means the vendor can have access to their funds earlier, without the risk of having to move before they’re ready. The lease should be drawn up either as a short-term license agreement by a solicitor, or as a formal Residential Tenancy Agreement (with a lease agreement, bond...
Property owners warned about under-insurance

Property owners warned about under-insurance

Adequate insurance coverage is vital to ensure your risk is reduced for unforeseen circumstances. The widespread damage to properties by storms covering such a large geographic area shows that no-one is immune from having their home damaged. And as we enter the summer months when the danger of bush fires is also extremely high in some areas of Australia, it is timely to remind property owners to have adequate insurance cover. Many people underestimate the cost of repairing or rebuilding their homes because construction costs have risen very sharply over the last decade. The danger of underinsurance has been highlighted by the Australian Securities and Investments Commission (ASIC) in its report, “Getting home insurance – A report into underinsurance”. ASIC notes surveys which have found that between 27 per cent and 81 per cent of home owners were underinsured by 10 per cent or more. ASIC also highlighted research which found that 24 per cent of consumers did not increase their insurance following renovations costing between $20,000 and $60,000. The danger of underinsurance is particularly high for first-time property buyers who have little equity in their homes and may try to save funds by limiting their level of insurance. It is a traumatic enough experience to have your home destroyed by a fire or storm. However, it is even more traumatic if you don’t have the necessary funds to rebuild the property due to lack of insurance. In addition, it is believed that only a very small proportion of investment properties have some form of rental insurance product. These insurance products provide the investor with protection against malicious damage...