Property investing is a hot topic, but there are considerations people should think about before they jump in.
1. Engage with the specialists
Whether you are an investor or a first home buyer, the first thing to do when you decide to invest in a property is to engage with the right people. People often decide to do it on their own to save money, however, this might seem like a good idea at the beginning, but it will likely turn into an additional headache by the end of the process.
Make sure you find the right mortgage fund, lender, and buyer’s agent and your journey should be much smoother. It is always better to get a referral or recommendation from a reputable source.
2. Don’t let FOMO take over
If there is one sector that has been unaffected by COVID in Australia it is real estate. The market hasn’t cooled down since the pandemic started; there is demand and not so much supply in every state. However, some buyers are rushing and paying way more than reserve prices, fearing that they will miss out on the opportunity to own a property.
My advice is don’t panic! Developers and investors are more eager than ever to build and keep up with the demand. According to NAB, growth in house prices will reach 5 per cent in 2022, after 2021’s estimated 23 per cent for the year (the highest since 1989).
For investors, it is a great time to make the right purchase. Fresh data from CoreLogic revealed that capital cities, regional areas, houses and units all saw an increase in rents last quarter, culminating in the highest calendar year growth rate since 2007.
Clearly, it is time to sit back and do your homework. Choose the right property that fits your goals, expectations, and above all, your budget!
3. More demand for units
Several indicators are now suggesting that the annual trend for national unit rents has turned positive, and vacancy rates have stopped rising. It is a good sign for those looking to invest in units.
Before you go ahead and buy the first one you find, make sure you do your homework. Check areas where population growth is steady, for example, suburbs like Botany, in Sydney, are in high demand. Additionally, the easing boarder restrictions will drive more international arrivals, who tend to prefer to live close to the CBD areas.
According to Domain’s chief of research and economics Nicola Powell, the capital city CBD markets that have seen the worst impacts of the pandemic will recover the fastest.
4. The time for non-bank lenders
The property lending market has experienced a growing shift from bank to non-bank lenders. In a post COVID-19 landscape, clients are looking for lenders that can offer more agile and flexible solutions to their needs. For instance, Princeton has seen revenue growth more than 20 percent per annum.
By offering more tailored options to brokers and developers, non-banks can fund more projects and focus on the development rather than presales, which is what most banks typically do.
5. Get good tax advice
- Ownership: Will you buy the asset in your personal name, company or Trust? Getting the ownership structure of your property wrong is one of the most costly mistakes an investor can make.
- Ownership basis: if you are buying an asset with another individual, this is a big step, so it is important to consider the division of ownership when you are making your decision. In property law, there are two types of ownership: tenants in common or joint tenants. Speak with a professional to decide which one works better for you.
- Negative gearing effect: Negative gearing occurs when the cost of owning a rental property outweighs the income it generates each year. This creates a taxable loss, which can normally be offset against other income including your wage or salary, to provide tax savings.
- Cashflow effect: How much of your disposable income will you need to set aside to meet the property’s expenses over and above the rental income it derives. Understanding this can be the difference between a solid long-term investment and a costly mistake.
George Gadallah is the Founder of Princeton Mortgage Fund. Princeton’s business model is supported by a Wholesale Funds Management platform. Princeton offers financing the acquisition of Development Approved sites and Construction Loans for residential development projects in the Sydney metropolitan area. Princeton adopts corporate governance by using the services of a custodian who holds investor funds, securities, external auditors, independent credit and compliance committees.