Property mags are full of rags to riches tales of millionaires who have earned their wealth investing in or renovating properties. But if it sounds too good to be true, it often is; and there are traps for those seeking to climb the property ladder. To help you avoid some of the pitfalls, guest writer Anthony Fensom offers a few seasoned tips to get more from your property investment.
Before eyeing that million-dollar waterfront home, remember the difference between living in a property and investing in it. Property investors often look for undervalued areas with potential for growth, such as those near a new infrastructure development, rather than established suburbs.
Consider properties that will appeal to tenants, such as those near shops and transport, and those with features such as a second bathroom. Units can be easier to maintain, but there is also the issue of body corporate fees.
Talk to local real estate agents and residents to find out more about the area, as well as checking recent sale prices and council information. A planned new highway might see your remote property suddenly gain improved access to the city, and along with it a substantial increase in value.
A number of free websites offer tools to help calculate your required savings or mortgage costs, including ASIC’s MoneySmart.
Borrowing to invest can pay off in times when the market is moving higher, but can also magnify losses. Do a budget to evaluate how much you can afford to borrow, but also look at the impact of higher interest rates, such as a 2 or 3 per cent increase.
Review the mortgage regularly to consider alternative lenders and potential savings from refinancing. While it can be time consuming to switch, having evidence of cheaper rates elsewhere could persuade your lender to offer a better deal.
Brisbane architect Robert Day says it is crucial to have a clear scope of work before starting renovations to prevent a cost surprise.
“The more you can define the scope of work at the start, the better the end result,” says Day. “By having proper documentation that is well defined, you can get a clear idea and help limit the chance of runaway costs.
“The final cost will never be the same as there are always unforeseen issues, so set aside a contingency fund. Make sure you get all the approvals before you start, and also ensure you have at least two or three quotes from builders.”
While the risk of overcapitalisation ”“ spending more on renovations than a property’s potential resale value ”“ is always a concern, Day says it depends on the owner’s circumstances.
“Ask yourself, ‘Am I going to be in the home for another 15 to 20 years?’ If the answer is yes, then overcapitalisation isn’t a consideration. You might be worried about the extra costs, but you’ll get a much better house from renovating.”
By doing your homework and being careful with financing and materials, it can be possible to get maximum value from your property investment or renovation.