You can take a step toward building your wealth seriously by buying a rental property whenever you’re ready with the funds. If you commit to this now, you can benefit from passive income for many years as your investment generates consistent capital gains.
Of course, you always have the option to move into it later, sell it to build up your nest egg, or allocate the income it generates toward adding more assets to your investment portfolio.
However, making such a decision goes beyond finding the best places to buy rental property.
Unsure how and where to begin? Here’s some essential information you need before committing to buy a rental property.
1. Cash flow or income potential
Before purchasing a rental property, consider how much revenue it can generate. A property that won’t generate much revenue or could hurt your finances won’t make sense to buy. Therefore, work on learning how to calculate ROI on rental property, do your research and get expert advice from your financial advisor.
The cost of a property and how easily you can find tenants for it are both heavily influenced by location.
Other than the actual geographic location of the property, other key factors to consider include its proximity to public transportation, schools, hospitals, supermarkets, parks, banks, etc. It should also be located in a safe and a generally pleasant neighbourhood.
The property and community you choose can impact your tenant profile. Flats typically attract students, people who are single and young couples. Growing families usually prefer standalone properties in quiet locations with a yard or garden and essential amenities.
3. Capital depreciation
Everything in your rental property, including the carport, carpets and rugs, balcony, appliances and blinds, will ultimately deteriorate and need to be replaced. You can deduct wear and tear from your annual income thanks to capital depreciation.
However, since calculating for rental property asset depreciation can get complicated, consult a depreciation specialist so you’re sure to abide by the conditions set by the Australian Taxation Office (ATO).
4. Property management
It’s easy to assume that when you only intend to buy one rental property, you’ll be able to manage it yourself. If you’re right next door or you’re not employed full-time, it may be possible to do some of the basic tasks of a property manager.
These include screening tenants, taking care of paperwork, handling repair and maintenance issues, and so on. However, you can also hire a property manager early on as they can provide you with advice on the properties tenants want, ideal locations and rental demand.
There are other items to contemplate besides the ones discussed here.
However, the above items should definitely be at the top of your list of priority considerations before committing to an investment property purchase.
If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.