Australians love bricks and mortar. Not only is home ownership the great Australian dream, but when we have spare cash to invest or have paid off the mortgage and want to put our equity to work, many of us turn again to property, buying for investment.
While the term property investor conjures visions of a magnate with a property portfolio and an expensive car, it actually applies to many of us. According to the Real Estate Institute of Australia, the latest taxation statistics show 14.9 per cent of taxpayers are investors in the residential property market – that’s 1.9 million people.
The majority of those are ordinary “mums and dads” with only one investment property. In the latest available statistics, 2010-11, 73 per cent of investors had only one such property. And in the previous five years there was substantial growth in the number of such investors, with seven out of 10 of those benefiting from negative gearing earning up to $80,001 a year.
For most of us the tax benefits offered by negative gearing – the ability to claim a tax deduction for expenses such as mortgage interest and maintenance costs associated with an investment property – are an attraction. If the cost of owning the property is greater than the rental income, that loss can be offset against other taxable income, including salaries.
Agents report growth in self-managed superannuation funds (SMSFs) has also boosted investment in residential property. Funds can buy property for investment and, with investors buoyed by the historical low interest rates, there is local and interstate investor interest in regional centres where prices are more affordable. Unit and apartment median prices in regional Victoria grew by 4 per cent in the December quarter of last year, but the median price remains only $257,000.
In Melbourne’s outer suburbs the median unit and apartment price of $406,000 is almost $100,000 less than the median house price. Yet while outer suburban house prices grew by 4.2 per cent in the December quarter, unit and apartment prices grew by 4.6 per cent. So property investing is not only for the well-heeled.
There are reports of investors buying property for their superannuation funds sight unseen. But the same principles apply as when buying your own home. Any purchase should be underpinned by thorough research – including viewing the property, preferably several times. Technology such as Google Earth and video tours are a great help, but no substitute for an actual inspection.
After deciding on preferred locations – preferably one with which you are familiar – and whether to buy a house or apartment, start by checking out median prices in those areas. Consult your bank, draw up your budget and be clear about your maximum price. There are many great properties out there, do not be tempted to overspend if you find “the right” one.
Make a list of must have features and those on which you would compromise. Remember: this is a rental; those criteria may be different from those for your home. For example, you may be willing to spend time on a high maintenance, hard-to-clean home, but a rental property should be hard wearing and easy to maintain.
Think about what would make your property attractive to tenants. For example, you may enjoy driving to work, but rental property proximity to public transport is essential. If buying a family home to rent out, is it near schools? If buying a trendy apartment, tenants will want cafes nearby.
Most importantly, put aside emotion. When buying your home you are looking for “the one”. But you don’t have to love your investment property – it is doing a job for you and must be chosen for its suitability to do the job well.
Enzo Raimondo, Chief Executive Officer, REIV, 1 April 2015