Looking to make your money grow through property is a popular form of investment in Australia. And the questions on the minds of many investors is, invest in houses or units? Not surprisingly, units are the most common property type purchased.
But before you rush to sign the contract there are a few things that you need to consider. Seven to be exact.
You can take it one step further by doing the necessary research to make sure you understand your investment and how it will work for you in the long term.
1. Strata fees
You need to understand that investing in a unit will likely come with strata fees, which are also known as strata rates. This helps to maintain the building and the common areas of the complex. All owners in the complex will have to make this payment on a quarterly basis. When creating your budget, it will be best to factor this in. It’s good to keep in the back of your mind that the more amnesties you have the more you will be forking out in fees to help maintain these things.
2. Know what you are investing in before signing
The building might look all good and presentable to the untrained eye, but it’s important to understand what structural problems it may have before signing a contract. Failing to investigate this beforehand can cost you greatly in the future.
You’d be throwing away your investment money if you plan on fixing any problems yourself, as there will be little to no returns on your investment.
It’s always a good idea to have the building surveyed by professionals for any structural or pest problems it might have before you sign the contract.
3. The overall cost of maintenance
Another thing to consider is the cost of maintaining the building in the long run. Building insurance is very important to have in order to protect yourself, should anything happen.
‘It is essential that before taking out a home loan to cover your expenses you look at what is required of you financially. Run the numbers in terms of how much you expect in terms of growth vs the cost. It is always good to view this in a sober state of mind so that you will know whether it is worth the expense,’ says Bill Tsouvalas, CEO of Savvy.
When creating your budget, you will have to break down your expenses into fixed and variable expenses:
- Fixed expenses –recurring expenses such as insurance, property taxes, maintenance, repairs and property management fees
- Variable expenses – These are unplanned expenses.
If your expenses overwhelm your returns, then it’s best not to invest your money in the property.
4. With any investment comes risk
You will need to consider every angle of the property and the risks that come with it. Getting a second opinion from a professional financial advisor or someone who knows about the property market like an estate agent will save you from making a poor investment decision. Questions that you should probably keep in mind are:
- How are you going to make up for the possibility of your property sitting empty between renters, which can lower your overall return?
- Have you considered possible expenses you will have to pay for having a bad tenant that damages your property?
- Have you considered any legal fees that may occur through having conflicts with a tenant that you had to evict?
5. Know if you are getting your money’s worth
You will have to do extensive research to know your numbers for the property market you are investing in, or you could find yourself paying more than you should. Finding out what other units have sold for in the block and suburb you are investing in is a good idea. Most units usually have the same floor plan and by using a unit that is similar to the one you have, you will be able to estimate how much you will be paying.
6. Know the by-laws
Avoid paying unnecessary fees by knowing what the by-laws are for your unit complex. Find out what is and isn’t allowed. If you are renting out the property you will have to know the by-laws to ensure that your tenants follow them. You can get this through a property agent or body corporate.
7. Position yourself
Before you invest, look at where your potential property is situated. Things you can consider are:
- Potential growth – Look for areas where high growth is expected and there is potential for capital gains
- Amenities – Is it close to facilities and infrastructure such as hospitals, schools, shopping centres and public transport?
- Strong rental yield – Look for areas that have a high rental yield compared to the property value
- Vacancy rates – Find out about the vacancy rate within the neighbourhood you wish to invest in. If there is a high vacancy rate this means it is not a desirable area for renters, which will impact how you rent and sell your unit in the future.
Author bio
Bill Tsouvalas is founder and managing director at Savvy. He has a been working in the mortgage, vehicle & asset finance business for over a decade. He also writes articles on mortgage, finance, insurance and consumer protection related topics.
