10 October 2017
It’s no secret that the Perth rental market currently favours tenants, so if you’re looking to purchase an investment property it’s important to select a rental that appeals to your target market.
Unlike purchasing your own home to live in, buying an investment property needs to be approached with your head – not your heart. Features you may value in your own home, may not necessarily appeal to prospective tenants.
You need to think like a tenant and buy a property that meets their needs. Here are five tips for purchasing a rental that appeals to tenants:
1. Location is paramount
As with any property purchase, location is paramount. This is especially the case when buying an investment property.
A common tenant requirement is proximity to amenities. Be sure to buy in areas that are close to key amenities like shops, transport and schools. It’s also a smart idea to seek locations that offer a good lifestyle, for example younger tenants generally value living close to thriving hubs, while families with young children will value being close to parks and kid friendly facilities.
2. Consider the home’s internal layout
Give consideration to the internal layout of the property you choose to invest in. Many tenants choose to share accommodation, so it’s a good idea to look at properties that have features that appeal to this style of living.
Things to consider when assessing the home include:
- Is there good separation between living areas and bedrooms?
- How many bedrooms does the home have? Are they spacious?
- Is there more than one bathroom?
- Are there plenty of storage options?
3. Outdoor areas are important
We’re lucky in Western Australia that our climate is warm and favours outdoor living. With this in mind, it’s a good idea to factor in some kind of outdoor area into the rental home you purchase. Whether it’s a balcony, a courtyard or an enclosed alfresco – outdoor living options are attractive.
While many tenants value outdoor living space, it’s worthwhile choosing a home that is low maintenance. Gardens may look beautiful, but they require a lot of upkeep so it’s best to invest in properties with low maintenance outdoor areas as prospective tenants may be put off by the work required to keep a garden looking good.
4. Parking options are highly regarded
Being able to offer tenants a designated parking space is very attractive. While in WA most homes come equipped with a garage or carport, units or apartments – particularly those in the city – often require tenants to park off-street. A lack of parking options is an inconvenience to tenants, so it’s beneficial to look for investment properties that provide tenants with a secure space to park their car.
5. Extra features will help your rental stand out
As an investor, you need to be competitive in the current market to secure a tenant. In order to make your home stand out, it’s worth ensuring the property has some attractive extras like:
- Airconditioning – WA’s long hot summers can be uncomfortable without airconditioning. Tenants want to be able to escape the heat when inside, so airconditioning is often a key requirement.
- Quality appliances – modern appliances like ovens, dishwashers and cooktops can go a long way in helping your home stand out.
- Digital connections – we live in a technological age, so features like good cable connections for internet and wifi and strong mobile signals are increasingly important factors for tenants.
- Pet friendly – rental properties that accommodate pets will appeal to a wider selection of applicants.
If you have any questions about renting out your property in Perth, speak to Ron Padua on 0404 428 843 or email firstname.lastname@example.org
29 August 2017
Have you ever wondered how property investors seem to keep buying properties without saving up for years to put down a deposit? It’s because they’re using a tactic called leverage: using the equity generated by the rising value of an existing property to purchase a new one. This property then grows in value, allowing the investor to repeat the process and buy again.
Sounds good in theory, but is it all it’s cracked up to be?
How leverage works
Leverage is a simple concept. It’s borrowing to increase the potential return of an investment. Taking out a mortgage to buy a home is a form of leverage.
Leveraging the equity in an existing property – whether a home or an investment – depends on the value of that property growing while the size of the mortgage reduces or stays the same. For example:
- You buy a property for $400,000, putting down a 20 per cent deposit ($80,000) and borrowing the remaining 80 per cent ($320,000)
- Over time, the property increases in value by $100,000. The 80 per cent mortgage would now only be 64 per cent of the property value – or less if you’re paying off the principal as well as the interest.
- You refinance, increasing your mortgage up to 80 per cent of $500,000. You create a cash pool of $80,000, which can be used as a deposit to buy an investment property
Property investor and mortgage broker Jane Slack-Smith of Investors Choice Mortgages highlights a number of benefits to this strategy.
“Using equity in this way minimises risk by keeping your cash in your pocket – you’re not using your cash reserves,” says Slack-Smith. “It also takes a long time to save cash – say, five years to save $100,000. In that time, property values are likely to increase faster than the interest on your savings.
“By using equity in an existing property, you can get into the market today and buy at today’s prices, benefiting from the coming years’ growth.”
There are risks to leveraging equity to buy investment properties. First and foremost, you have to be certain that you can service all the mortgages you’re taking out, otherwise you could lose some or all of your assets. Researching potential purchases thoroughly is essential to avoiding a bad investment, says Slack-Smith.
“Leveraging equity doesn’t relinquish you of the responsibility of researching before buying an investment property. You should ensure that you have a clear strategy – flipping or buying to hold – as well as ensure you’re buying in a good suburb.”
You could also end up being plagued by cross-collateralisation if you’re not careful. This is where lenders use equity in more than one property to secure the loan. While it may allow you to borrow more in the short term, in the long term it could hinder your empire-building plans.
“Cross-collateralisation reduces your flexibility. If you want to draw out equity from an investment property in a few years, it means the bank may refinance your entire portfolio, rather than just one property.”
Depending on how individual property values have changed, that could mean you’d be unable to access any equity. While cross-collateralised loans can be disentangled, it can take up to six months.
Plan of attack
It’s essential that you plan ahead before you start refinancing. A good mortgage broker should be able to help you with this process.
“It’s important to have a clear initial plan of how you’re going to set out your finances. If you plan to buy two properties, ensure you have enough equity to cover the deposit, stamp duty and buyer’s agent fees for both purchases.”
Slack-Smith recommends setting up individual loan splits against your first property that will only be used to finance the purchasing of further properties. The interest on those splits should also be tax-deductible, as long as those splits are only used for investment purposes. She also recommends setting up the splits as lines of credit, rather than as a conventional mortgage.
“A line of credit is usually a little bit more expensive, but it’s like a big credit card – you don’t pay for what you don’t use. Just be disciplined and don’t use them to finance new cars or holidays!”
Leveraging equity growth in your existing properties can help you build a property empire faster – as long as you set it up correctly from day one and do your research. Otherwise, you could find your portfolio collapsing faster than a house of cards.