PROPERTY AUSTRALIA

Here’s some advice based on the experience of a non-expert property investor.

Like many small punters, I was enticed by features on TV shows to invest in property. Formerly, I’d been resistant to such a course of action because (a) it’s high risk & (b) I don’t like the thought of ‘eating up’ existing housing stock, thus making it less available to first-home buyers and pushing prices up. In the end, I salved my conscience by buying an old home to do up and then sell, and more recently bought ‘off the plan’ in a new estate in a growing satellite town, thus using my money to add to the quantum of housing stock.

[caption id="attachment_246" align="aligncenter" width="240" caption="Photo by James Thompson"][/caption]

From my experience, I suggest you consider the following before making any property investment.

1. NEVER BE PRESSURED BY PEOPLE HAWKING PROPERTY. ALWAYS give yourself breathing space to seek advice from a suitable accountant &/or financial planner &/or knowledgeable friend.

2. IF YOU BUY INTO A NASCENT AREA, WHEN IT IS BUILT UP THERE WILL PROBABLY BE A GLUT OF PROPERTY and thus rents and possibly capital values may go down in the short to medium term. In my case, a public housing agency built two blocks of low-rent units in the area, depressing rentals even more.

3. Bear in mind that NEGATIVE GEARING (i.e. rent received being less than costs) as a tax reduction method IS MORE SUITABLE FOR HIGH-INCOME EARNERS than for those on modest incomes. Seek advice from a tax professional for your particular circumstances.

4. FACTOR IN THE REAL COST OF AN INVESTMENT before you make a commitment. As well as the interest on any investment loan or mortgage on the property, you should try to calculate how you could get higher and maybe more reliable returns on your outlay (possibly without so much hassle). If you already have a mortgage on your own home, remember that any money spent on your investment property, including interest, could have been used to reduce your home mortgage and save on interest payments.

5. THOROUGHLY CASE THE NEIGHBOURHOOD into which you’re intending to buy (Is it growing? Are capital values expected to rise?) as well as checking the economic forecasts for the region (Is growth expected? What could go wrong economically?).

6. THERE IS NO SUCH THING AS HASSLE-FREE LANDLORDSHIP. You need a reliable property manager (not all real estate agencies are dependable for this) and, even with one, there will repeatedly be issues arising that they need to check with you. This will tax your time and patience.

7. TENANTS CAN BE VOLATILE! You’ve no doubt seen features about this on TV programs. “Tenants”, of course, include the whole gamut of human variety: the good, the bad and the ugly.

8. Remember PROPERTY INVESTMENTS ARE GENERALLY MEDIUM TO LONG TERM and based largely on HOPE. You hope you’ll have tenants in place, you hope your rental receipts will be sufficient, you hope interest rates won’t nobble you, and you hope capital gains will eventually recoup you for your trouble.

9. THERE IS USUALLY NO EASY WAY OUT if the property you’ve bought turns out to be a lemon. Then you have the dilemma of choosing between selling now to limit your losses, or hanging in there in the hope of recouping later but maybe losing even more.

Good luck, and tread warily.

- Major Domo.

[About the author: 'Major Domo' is the pseudonym of an Australian who has had a couple of property investments as well as having tenants in his temporarily vacant homes. He would be a lot further in front now if he had been more aware of the above points before making purchases.]