If you want to build a solid financial future for your family, buying your first rental property is a proven means of increasing income, but not without doing your research and putting in some effort.
While investing in other financial markets can yield greater gains in shorter time frames, their volatile nature carries greater risks.
Investing in real estate has the advantage of being safer from economic fluctuations, but it is less liquid than other assets should your financial circumstances change.
If you have income in excess of your current needs and are considering buying a rental property to make good use of that, here’s what you need to know.
Buying your first rental property: This time it’s not about you
Buying a rental property is different from buying your own home, so it’s best to adopt a different mindset from the outset.
Focus not on what you find desirable in terms of features and location, but on what appeals to those in the relevant rental market.
That’s why it’s important to work with a local real estate agency that buys, sells and manages a large number of rental properties and, therefore, knows the demands of that market intimately.
Buying your first rental property: The big ‘O’—Occupancy
Achieving high occupancy, preferably with long-term tenants, is critical to earning the highest returns from a rental property.
To ensure the highest possible occupancy, treat your rental property as a small business and operate it on a professional basis.
While it may be tempting to buy a house that is cheaper because it needs some work done on it, consider that you will lose rental income while the work is carried out and you will have to pay for the work, all while still meeting your loan repayments.
Buying your first rental property: Property management essentials
Choose an experienced local real estate agency that employs professional property managers.
Your property manager will vet potential tenants and be the interface between you and your eventual tenants.
A good property manager should be well trained in maximising your cash flow and the growth of your asset.
Before employing a property manager, ask what policies and procedures they have in place to achieve this.
Buying your first rental property: Money matters
Consider the numbers before you purchase an investment property—look at which items are tax deductible and how they will increase or decrease your existing income each week or fortnight.
Prepare a cash flow chart and include all outgoings, income, and don’t forget depreciation.
As with all major financial decisions, it is prudent to consult a professional financial adviser who will assess your individual situation and inform you of all your options and obligations.
It is also always worthwhile to ask a specialist quantity surveyor what can be claimed before you purchase a rental property.
For example, according to BMT Quantity Surveyors, the owner of a property constructed prior to 1987 can receive an average depreciation deduction of $4899 in the first full financial year alone.
Owners of brand-new properties can receive even higher depreciation deductions, with an average deduction of $12 680 in the first full financial year.
Buying your first rental property: Go with those in the know
The McGrath Real Estate team includes six professional property managers, who know the rental market in Adelaide’s western and coastal suburbs inside and out.
Their knowledge, combined with that of our sales professionals, will put you in a great position to buy a rental property that works hard for you.
Please contact us to discuss your plans to invest in property.