Puzzle Finance Blog

Taking the plunge on property

THERE are key questions you need to ask yourself before deciding whether to invest in property.

Our real estate sector is looking in better shape than it was a year ago, experts are saying.

That doesn't mean the good times are back - it just means the market is not the bucket of slop it was last spring.

Property investors, having watched real estate values fall in recent years sometimes to below their purchase price, are understandably nervous about jumping in.

Whether you're an experienced investor or a first-timer, there are five key questions you need to ask yourself before taking the plunge on property.

1. How will I handle a house price crash?

Experts - even those at our esteemed Reserve Bank - don't expect our real estate market to suffer the big falls felt in Europe and the US, but that doesn't mean it won't happen. Think about how you would react if your investment was worth 20-30 per cent less than your mortgage on it. This will help you realise if you're ready.
2. Do I want growth or income?

This will depend on your life stage. Older real estate investors often use rental property income to help fund their retirement, while youngsters tend to be more focused on capital growth. Properties in outer suburbs and regional areas tend to offer lower capital growth and higher income than inner-city areas, but before buying anywhere make sure you've done your research.

3. What's my Plan B if disaster strikes?

If your tenants do a runner, you can't attract tenants, you lose your job or interest rates soar to levels you cannot afford, how will you cope? Investors need to think about such worst-case scenarios before buying, to make sure they have other sources of income to cover the problems and prevent a forced sale.

4. What are ALL the costs?

Don't just crunch the numbers on interest rates you're going to have to pay other borrowing costs, council rates, insurance, land tax, repairs and maintenance, possibly property management fees, and more. You don't get all these costs refunded at tax time, only about 30-40 per cent for most investors, so make sure it still makes financial sense.

5. What's my exit plan?

Anyone entering any investment should have an idea about how and when they are going to get out. Property investment usually requires at least a decade to make it worthwhile.

Of course, the biggest question every would-be property investor wants answered is: will it help make me rich?

The answer, based on decades of past property price growth in South Australia, is yes, as long as you buy well and have plenty of patience.


Once you've found a potential property investment, there's a mountain of other questions to ask agents, lenders and other experts before buying. These include:

* How long has it been on the market? This may affect your bargaining power.

* Do the house and location suit the type of tenants who will most likely live there?

* What are the depreciation benefits? Newer properties deliver bigger tax deductions.

* What is the vacancy rate for the area and the current rental income?

* Is there a need for future repairs and renovations?

* Does it have a property manager and what are the costs?

* Is it close to public transport and schools?

* What's the best interest possible for the investment loan?

Posted by By Anthony Keane, Your Money editor on 11th September, 2012 | Comments | Trackbacks

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