In part one of this series, we discussed the pros and cons of investing in various residential property types. Staying on that street for a while, this week we’re looking at other factors that could impact the returns you see on a potential property investment.
Don’t buy the house, buy the neighbourhood.
Conventional wisdom states that it’s almost always better off buying the crummiest house in the nicest street, rather than the other way around. Unless you have the resources to upgrade the infrastructure of an entire area, it can take a lot longer to realise the growth in a less affluent suburb.
A lick of paint and some new fixtures on the other hand? That’s attainable.
Whether you’re you’re leaning towards a new or established property; it’s true that central, urban developments often see a higher rate of occupancy and capital growth over regional real estate investments.
That’s not to say stay out of the sticks. Investing in regional centres with proven industry growth or energy projects can be highly lucrative. If you don’t have the capital to buy up a stack of blue chip shares, it’s still worth keeping an eye on trends in the resources and energy sectors.
One tip from a successful property investor (now with five houses in his portfolio): find out where the next Bunnings is going to open and look for property in that area. Her logic is that the Wesfarmers Group have already done the hard work researching where potential growth is likely to occur. After all, they’re staking a warehouse on it.
There are many ways to lose money in real estate. Timing is everything, take the unfortunate situation of a couple who bought their first home in 1990. After the initial slump in housing prices, they made their way back on top of things financially in the late-2000s. Then they signed the paperwork on their first investment property in 2008, just before the GFC. Ouch!
Due diligence in identifying defects before the sale is also hugely important. We’ve heard stories of investors signing, only to find a termite inspection hadn’t been completed in an inaccessible section of the house. It later turned out to be infested. Because the signed report stated that the area wasn’t able to be inspected, the buyer was left with a crumbling, difficult to sell asset to gnaw away at their finances.
It’s also worth getting professional advice from a mortgage broker, your accountant, and a property lawyer before making any big decisions in real estate. Being the leaders in wealth building and financial planning, talk with TWD about getting the right advice from trusted industry professionals.