KEY CONSIDERATIONS WHEN BUYING AN INVESTMENT PROPERTY
Make no mistake, buying an investment property is a business decision! Whilst the purchase of your own residence is more personal and emotion can impact on the final outcome, investment properties are about making money whether through rental income, capital growth or both. This business approach to buying property means thinking about more than location and individual home features, and in today’s blog McAdam & Turnbull Realty Principal and selling agent Lachlan Evans explores a few important considerations before you enter the investment property market.
- Rent Yield – Like any good investment you’ll want to maximise the return received from the property. The Rent Yield is calculated by annual rental divided by the purchase price and expressed as a percentage (%). g. Purchase price $300,000. Annual rental $15,600 @ $300 per week. 15,600/300,000 = 5.2% The higher the % the better the yield.
- Depreciation – Relates to the decrease in the value of an asset over time due to wear and tear and use. From an accounting perspective it allocates the cost of an asset over its useful life. For example, a computer purchased for $2,000 in 2018 may be worth $0 by 2022 and will have depreciated 25% per year in doing so. So, how does this all relate to your investment property? Depending on the age of the home/unit and various fixtures and fittings within it, those individual items may be depreciated over time and provide potential taxation benefits. You should discuss it with your accountant to understand how depreciation may impact on your financial circumstances.
- Taxation – In addition to depreciation there are a range of other financial issues that need consideration when comparing one property with another and one loan product (if applic) over another. The general expenses associated with managing and running the property may be tax deductable provided certain criteria are met. Add this topic to your list for discussion with an accountant!
- Location – The favourite chestnut! Location impacts every property purchase decision. Proximity to community facilities such as schools, shops and transport will make a property more or less desirable to prospective tenants. On top of that, when the time comes to sell it’s usually one of the key considerations for other prospective buyers. See our other recent blogs on buying property for more comment on location.
- Maintenance – Take a walk around the property and note any damage to buildings, walls and features and any maintenance or upgrade issues. Consider these additional costs relative to the purchase price and your available budget for upgrades post settlement.
- Street appeal – Those initial seconds count when making a first impression. Many prospective tenants will look at the property from the footpath to the front door, and good street appeal will make the property more inviting and may increase interest in it.
Whilst the list isn’t exhaustive it highlights several key areas you need to think about. Rental Yield, Depreciation and Taxation are complex areas and require specialised advice from an accountant or qualified financial advisor. McAdam & Turnbull recommends obtaining professional financial advice before making any investment purchase decisions.
As a further recommendation for new investors, Lachlan always says “find your property manager before you find your property”. A qualified and experienced Management Agency can work wth you in determining whether a property is suitable as a rental and help you to avoid some of the more common pitfalls, when you buy. They are afterall your “business partners” during the period you will own your investment property.
The information contained in todays blog is deliberately general in nature as every person’s situation is different. The sales team led by Lachlan Evans are focused on tailoring real estate solutions to meet your needs and keep the experience as stress free as possible.
McAdam & Turnbull Realty are your local real estate professionals and property management specialists in Toowoomba and nearby surrounds. You can follow our Principal and agent Lachlan Evans at www.linkedin.com/in/lachlan-evans-621bb583 or view our current rental and sale listings at http://www.mcadamturnbull.com.au and LIKE us on Facebook @
This publication covers real estate, property market, finance and legal related issues in a general way. It is intended for general information purposes only and should not be regarded as professional finance or legal advice. McAdam & Turnbull Realty recommends that professional legal and/or finance advice should be obtained before taking any action on the basis of the general information presented in this publication.
Written and Published by www.presentprofessionally.com.au