Purchasing Decisions

You are buying a business

When you’re buying a home, the process is full of emotion.

Buying an investment property is a business decision. Your purchasing decisions should be based on clear reason and logic. You are doing this to make money, not to feel good about owning another nice house.

How much should you spend and where should you buy an investment property?

Location, location, location. It’s as if you won’t learn the first time.. apparently we have to throw two more in for good measure.

We prefer a more research based approach to finding out where to purchase your investment property. How much depends on a lot of things including your chosen investment strategy.

To start though, you need to look at suburb reports which detail rental yields, rental growth and value growth. These reports will give you a feel for the returns based the varying purchase prices. Often spending more on a property doesn’t yield a higher return.

If you are buying the property for rent return, you should concentrate on what gets your best rent return for every dollar spent. Things like swimming pools, large yards, landscaping, interior design do not get you rent returns.

If you are buying the property for value increase/capital growth, consider what could be done to increase the value of the property. Whether it’s a coat of paint or removing a wall, the work needs to be costed out before hand so you make make a clear decision.

Should you move and use your current home as an investment property?

Although it would be easier, this is usually not a good idea for the following reasons:

• Not Tax Efficient – Investment – you can only claim the interest on the loan amount when it the house is changed to investment purposes. So if you’ve paid your house down, you would be missing out on tax savings.
• Not Tax Efficient – New Home – you can’t claim any of the purchase costs for your new home including getting access to equity on your current home.
• Investment Fit – Good homes don’t necessarily make good investments. That extra money you spent on the pool will be more of a headache than an asset
• Heart Breaking – No tenant will look after you home the way you do. It can be disappointing to see your pride an joy deteriorate.

It is usually better to sell your home and purchase a property specifically for investment purposes.

What costs should you keep in mind?

Should I buy an apartment or house?

Ultimately this should depend on which will give the better return for your investment strategy. It will differ from suburb to suburb and will depend on the demographic that you want as tenants.

What next?