What to know if you’re starting your property portfolio in 2021.
Property is a popular asset class in Australia and the current market conditions in Perth are providing a great opportunity for first-time investors to enter the market.
Affordable prices, predicted price growth and a rental shortage are creating a perfect storm of conditions that may just provide investors with the ideal catalyst to launch their property investment journey. However, the world of residential property investment can be confusing for would-be investors to navigate.
Here’s what aspiring investors should know before taking the plunge on their own property journey in 2021.
Start by identifying the right investment strategy for you
Property investment isn’t a one-size-fits-all approach. Each investor’s strategy will differ based on individual factors including their unique goals, risk profile and current circumstances.
The most common strategy for investors starting out in their investment portfolio is a buy and hold strategy that looks to target long-term capital growth. By purchasing a property in an investment-grade location and with strong land content, investors can look to benefit from the uplift in value that this property experiences across its lifetime.
Another consideration for first-time investors is which property type they choose to invest in. Traditionally, houses have proved a popular choice for property investors who value the land component and freedom that comes with them. Units on the other hand are generally cheaper, offering a lower cost of entry which may allow first-time investors to enter the market sooner. However, they will typically offer lower long-term growth due to their weaker underlying land component.
Get your finance structures right to maximise flexibility
Proper structuring of your finances is equally critical for new investors. Not all mortgage brokers have a strong understanding of property investment, and poor loan structuring can have serious implications on your ability to move forward with your property plans in the future. An example of this is when loans are cross-collateralised, which occurs when more than one property is used to secure a loan. This structure should be avoided by investors as it limits borrowing flexibility, increases complexity and can make refinancing or changing banks more complicated in the future.
Having a strong understanding of your current financial position and any planned changes to income in the future is also essential to create a scalable finance structure. We discuss these strategies in more detail in our eBook on leveraging equity to finance your investment property.
Market research is key
Local market research is critical when purchasing an investment property, and this is even more important for first-time investors who are looking to set a strong foundation for future growth. Market drivers such as location, nearby infrastructure, local planning policies, oncoming supply and local amenities are all critical factors that can impact the future growth of an investment property.
A key point to understand for new property investors is that the market doesn’t act in unison. While Perth’s median house price is forecast to increase by up to 10% in 2021, this growth won’t be spread evenly across all suburbs. Pockets of the market will experience strong growth, while others will be subject to smaller gains, or in some cases even losses. A general research approach is important to help identify broader areas of interest for investment, but it is then critical to narrow down your research to specific sub-sections of the market to identify the best investment opportunities.
Researching and identifying the right property for investment can be a time-consuming and intensive process, which is why many experienced investors choose to engage a professional during the property acquisition process. Buyer’s agents offer investors local area expertise thanks to their consistent monitoring of the market and insider knowledge, which can be a fantastic resource for new investors who are just getting started in the property game.
Don’t overlook the importance of good management
Purchasing an investment property is only one part of the equation; this asset now must be managed to help it perform to its full potential. Property management is often considered an afterthought, with many people believing the process just involves collecting the rent – this couldn’t be further from the truth. A good property manager actively focusses on adding value to an investor’s portfolio with proactive strategies that enhance rentability, and therefore potential rental returns, while also minimising the risk to the landlord.
Taking the first step on your property journey can be a daunting exercise and it is easy for first-time investors to feel overwhelmed. If you’re looking to start your own property portfolio, it is important to lay strong foundations for your future. Momentum Wealth’s property consultants can help tailor an investment strategy to your unique circumstances and risk profile. Get in touch with us here for an obligation free consultation and to launch your property investment journey.