Buying to rent: What you need to consider

At the right time and with the right property, buying a house or unit to rent out is an ideal long-term investment. With the Australian property market now beginning to stabilise after the years-long boom, property is once again an appealing investment option. Before you buy, take the time to do your research, so you make the best purchase possible. From budget to location to legislation, we explore some need-to-knows for buy-to-rent investors.

Know your budget

How much do you actually have to spend? There are many costs involved in buying and managing an investment property that can impact your budget greatly. How much do you actually have to spend? There are many costs involved in buying and managing an investment property that can impact your budget greatly. 
For example, purchasing costs may include:

  • Stamp duty
  • Loan fees
  • Conveyancing
  • Pest and building reports
  • Lender’s mortgage insurance (if you have less than the deposit required by your bank)

While ongoing costs and financial considerations may include:

  • Council rates
  • Body corporate fees
  • Water rates
  • Property management fees, such as a real estate agent
  • Repair and maintenance costs
  • Landlord insurance
  • Potential periods where you may not be receiving rental income (i.e. between tenants)
  • Any other loan-related costs, such as interest rate increases

Take the time to put together a detailed breakdown of all the costs to build a true picture of your budget. This will help you buy an investment property in the right price range and choose a mortgage best suited to your finances. It will also reduce the risk of unexpected costs later down the track.

Be aware of related legislation

Being informed on legislation around investment properties is also helpful. Negative gearing is one example. This occurs when the income (rent) from an investment (the property) is less than the expenses and can potentially be used to reduce the amount of tax you pay. Negative gearing is a contentious topic, with politicians regularly inclined to change the relevant legislation as a means of address housing affordability.

Identify the right type of property

What type of investment are you seeking? Are you after a residential investment that you’d rent out to -term tenants? Or an out-of-town holiday house you can lease out for short-term stays through a local real estate agency or online sites like Airbnb and Stayz? This will, in ways, influence what you are looking for in a property.What type of investment are you seeking? Are you after a residential investment that you’d rent out to long-term tenants? Or an out-of-town holiday house you can lease out for short-term stays through a local real estate agency or online sites like Airbnb and Stayz? This will, in ways, influence what you are looking for in a property.

If you’re considering purchasing a holiday home, priorities may include choosing a property located in a popular destination that’s not too far a drive from a larger city. Close proximity to local amenities and attractions, such as the beach would also be a high priority to ensure a stable return on your investment.

For residential property, factors to consider may include:

  • Being located in a growth area or a high-demand suburb.
  • Close proximity to public transport, schools, and amenities like shops and cafes.
  • A property that is safe, clean, functional and low maintenance.
  • For some tenants, inclusions like off-street parking, storage space, an internal laundry and outdoor areas, such as a balcony, courtyard or garden, are also essential.

How to best manage the property

You may choose to look after your investment property yourself or to appoint a property manager to handle it. This will depend on factors such as how close you live to the investment property, whether time or money is a driving factor, and what kind of investment property it is. If it’s a holiday home that is rented on a short-term basis, a property manager may make it easier to arrange and coordinate bookings especially if you don’t live close to the property. You may choose to look after your investment property yourself or to appoint a property manager to handle it. This will depend on factors such as how close you live to the investment property, whether time or money is a driving factor, and what kind of investment property it is. If it’s a holiday home that is rented on a short-term basis, a property manager may make it easier to arrange and coordinate bookings especially if you don’t live close to the property. 

If you do choose to appoint an agent or manager to oversee care of the property, shop around, ask questions and seek referrals. This may help you appoint a diligent agent that will look after your property and nurture a good relationship with your tenants.

 

When purchasing an investment property, consider CCI Personal Insurance to assist with your Landlord Insurance needs. Get a quote now or find out more about our landlord insurance policy.

 

 

Sources:

https://www.moneysmart.gov.au/investing/invest-smarter/negative-and-positive-gearing