For many people who already own or are well on their way to owning a home, the appeal of investing in residential property is tempting.
However, it is a big step for first time investors, so what are some of the keys to success?
Jack and Jodie bought their home six years ago and with careful budgeting, managed to significantly reduce their mortgage. They have watched the value of their home increase and seen their friends with suitable properties benefit from their investment.
They have two young children and expect to be facing secondary and university education expenses in the years ahead. In the meantime, they have decided now is the time to establish their own investment property portfolio.
After discussion with their mortgage professional, they obtained approval for an investment loan of $400,000. They planned for their investment property to be cash flow neutral; for the rent to cover the mortgage and other costs. However, they were warned there could be unexpected expenses along the way and budgeted to cover any shortfall from Jack’s income.
They then faced the difficult decision of the type of property to buy and the preferred location. With their primary objective being capital gain, they soon realised they would be better buying in an established area. The new properties they inspected were in developing areas with plenty of surrounding land and it became obvious that prices in such areas might be slow to rise relative to their timeframe.
By looking in older established areas they were able to find a property within in their price bracket, close to schools and other amenities. It was also in an area that was becoming increasingly desirable as industry moved further out of town.
Jack and Jodie are now on their way to establishing a successful investment property portfolio. As they reduce the mortgage on their investment property, they plan to seek further investment properties. They have also taken precautions to ensure they will not be under financial pressure as interest rates rise or if there are short periods without a tenant.
If your situation is similar to Jack and Jodie’s, give us a call to discuss the pros and cons of investing in residential property. The key to success is to do your homework first.