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What you need to know before buying an investment in the current market

By Mo Zeitouneh

If you’re considering buying a first investment property, now could be the time to finally make the leap.

Whether you’re looking to make a short-term profit or want to create a better lifestyle in the long run, the current discourse points to now as being the best time to explore a low-risk investment strategy.

“Property investors have had a very turbulent few years. During the pandemic there was a moratorium on rental evictions and rents were decreasing in many markets. But things are starting to shift and we’re seeing really strong rental growth in a lot of suburbs around Australia,” says REA Economist Anne Flaherty.

“Vacancy rates are very low, so from the perspective of a property investor, the market is lower risk than it was say two years ago.”

With the help of Ms Flaherty, buyers agent Cate Bakos, and RACV expert Michelle Jenkinson, we get the best insider tips on how to make your first property investment a success.

Now might be the best time to explore a low-risk investment strategy. Picture: Getty.

Do the math

There are a lot of expenses involved with owning an investment property, so you need to make sure the math works out, especially in the current market.

“We’ve seen a very quick succession of rate rises and the expectation is that they are going to go further, so you want to ensure you can service that debt as well as taking into account all the other associated costs,” says Anne.

Buyer’s agent Cate Bakos says things like stamp duty, land tax, water rates, body corporate/leasing and property management fees are all costs that landlords need to factor in.

“You should also think about what additional buffers could help you in the event that interest rates eclipse projected levels we’re reading about,” she adds.

Be sure to factor rising interest rates into your investment strategy. Picture: Getty

Understand your strategy

For the uninitiated, the prospect of purchasing in an environment with consistently increasing interest rates can seem daunting, so it’s vital to have a sound strategy in place.

Are you looking to buy and hold, or is your first investment an effort to add value and resell in the short to medium term?

If it’s the latter, buyer’s agent Cate Bakos advises to be mindful of your own capabilities.

“Make sure that what you are spending will actually be recouped along with a profit. If you aren’t sure, ask around to ensure you aren’t going to risk over-capitalising – i.e. spending more than you are likely to make in profit,” she says.

Have the right insurance in place

Regardless of whether you are a first-time investor or you have previous experience as a landlord, your investment property is an important financial asset, so it’s important to minimise your risk.

RACV Product Manager, Michelle Jenkinson, says that while home insurance can help cover events like floods, fires and storms, it doesn’t always cover tenant-related incidents.

“RACV Landlord Insurance can cover both your building and tenant-related-incidents in one comprehensive product offering, making your job as a new landlord easier and giving you peace of mind,” she says.

RACV Landlord Insurance can help mitigate your risk by covering you for a variety of tenant-related incidents, with comprehensive cover for:

  • Rent default up to $10,000, plus up to $10,000 for legal costs to recover unpaid rent
  • The removal of tenants’ possessions – up to $10,000
  • Unauthorised alterations made by your tenant
  • Replacement of locks – up to $800

Buy the right property, not a bargain

With the current market in over supply, there can be the temptation to look at compromised stock just to find an elusive bargain.

Purchase smart, don’t go for the easy bargain. Picture: Getty

Ms Bakos advises against this: “Be prepared to pay market value for an A-grade asset. There is little point getting a bargain C-grade option if the performance differential each year erodes the gains you could have experienced longer term.”

Choose your support crew carefully

When investing in property, inexperienced first-timers will sometimes turn to well-meaning friends and family members for advice, which Cate warns could actually throw you off your game.

“Fear, over-protectiveness and jealousy are all a threat to a successful property investor’s plans, so only share your plans with the people who will support you in a productive and healthy way,” she says.


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