For most mums and dads, the decision to buy an investment property is a major decision. Whether you’re buying a property with a view to retiring in it in the future, or whether you want to use the rental income to travel more or become “grey nomads”, it can be a scary proposition for families, especially when in most cases the family is using their nest egg for the purchase.
Here are five keys things to look out for when considering whether to buy an investment property:
To buy a stand-alone house or a unit?
With the severe lack of space in metropolitan Sydney, the emergence of residential unit blocks has meant that stand-alone houses aren’t as common as they once were and are not as readily available. The prevalence of units means that you may be more likely to purchase one, in which case, you should make sure that you’re aware of a few inclusions that don’t come with a standalone house.
When units (a strata complex) are created, so too is an owners corporation. The owners corporation is responsible for the common areas in the strata complex (usually driveways, lifts, pools, etc) with levies onto owners for their maintenance and repair. Levies for future capital works are also paid for by owners to allow for any urgent repairs or to cover the cost of major building defects in the future. If you are looking at buying into a strata community, it would be sensible to obtain a strata search before entering into a contract to buy the property. This is usually ordered by your solicitor or conveyancer. A strata search will show you the following things:
- how much strata levies are per quarter;
- whether the strata complex is properly insured;
- whether any resolutions have been passed to do with security of the complex or whether there are any problems with parking on the common property; and,
- whether any special levies have been struck. Special levies are struck when an urgent repair or building defect needs rectification. These can be extremely expensive for owners, so keep an eye out for them.
Should the strata search come back fine, then it may be a safe and sound investment but definitely do your homework beforehand, otherwise you may find yourself contributing to capital works you were unaware of.
When buying a standalone house, obviously any major works needed fall on you completely – both a positive and a negative. On the negative side, you can’t rely on others to contribute toward the costs however, on the flipside, you have control over the work done and can ensure you’re happy with the repair. Capital repairs on a standalone house are also likely to be less frequent than a residential strata complex so you may wind up outlaying less in the long term.
Live near public transport
As the roads become more congested, it’s becoming easier and cheaper to travel to work by public transport. Out in Sydney’s west and northwest, additional train lines are being built to service the booming population, so if you could purchase a house that is near a train station, then there are two clear advantages:
- you are close to public transport facilities which will prevent you sitting in traffic for hours on end; and,
- in most cases, the closer you live to public transport, the more capital growth your house will yield as they’re in high demand from others for ease of commuting.
Is your house or unit in an area which is likely to attract tenants?
Keep an eye out for emerging areas of Sydney where flocks of people are moving to. These areas may be the best to buy in because as more and more people move there, your house will always be in demand for tenants. You might also like to live close to a newly established university or college as students are always looking for somewhere to live off campus, increasing your pool of potential tenants. If you do purchase a property in an area close to a university/college, try to also make sure that it is close to other infrastructure like transport and or/a shopping centre to increase its desirability.
Don’t buy a property that needs a lot of work
Unless you have the time to do renovations yourself and can afford for the place to be empty while they’re completed, buy a place that needs little to no work done so it can be let easily and quickly. Time and time again, I have seen investors think that they can do renovations on weekends over the course of six months to a year but, as always, life gets in the way, and you’re left with an incomplete house that can’t be rented so it’s best to buy a place that is ready to lease straight away.
Find a good property manager
Yes, this may reduce the rental yield that you’re expecting for your investment, but a good property manager is worth their weight in gold. A property manager has a few roles that you probably don’t want to undertake yourself.
They collect rent on your behalf, and most importantly, chase the tenants for any arrears. You don’t want to get personally involved with your tenants and sometimes emotion can spill over, so let the property manager do their job.
They take any complaint calls from the tenant. Whether it be a leaking water tank or a broken oven, you don’t want to be called by a tenant whenever these minor things occur. The manager can act as a conduit between yourself and the tenant, which means less headaches for you.
They can also help you find the right tenants for you. Property managers can and should perform reference checks on the tenant, make sure the proper bond amount is paid and conduct regular inspections to check on the repair of the house.
For more information, please read our Plain English Guide to Buying Real Estate.
Dean Claughton is a lawyer at Coleman Greig Lawyers