If you’re looking to build your financial future, investing in residential real estate is a fantastic avenue to explore. It provides a stable option for your funds and offers significant potential for long-term growth.
That said, navigating the complexities of property investment can be challenging, especially for first-time investors. The distinctions between purchasing a property as an owner-occupier and as an investor can be substantial, sometimes resulting in significant cost differences. To help you begin, here’s what you need to know.
Positive Gearing
A positive cashflow property is one where the rental income generated exceeds the total costs of ownership, such as mortgage repayments and ongoing maintenance. This type of property yields a profit while offering a strong rental return.
However, as property prices rise, rental yields tend to decrease. This can make it harder to achieve positive cashflow with investment properties in Victoria.
Negative Gearing
A negatively geared property is the opposite of positive cashflow. In this case, the expenses, including loan interest, surpass the rental income, causing the property to operate at a loss. Despite this, negatively geared investments can provide tax benefits, making them appealing to investors seeking long-term capital gains.
This strategy is particularly popular in Victoria, especially in Melbourne’s booming market, where property values continue to climb. However, choosing between these strategies largely depends on your financial situation and goals. The team at TPG Property Group can help tailor an approach to fit your needs.
An investment home loan generally comes with a slightly higher cost compared to a standard fixed or variable mortgage for an owner-occupier. While the difference may be as minimal as 0.2%, it can accumulate to significant amounts over the long term.
Engaging experts like TPG Property Group can help you estimate the repayment obligations on an investment loan and explore a broad range of mortgage solutions tailored to your needs.
Additionally, it’s important to note that since the Australian Prudential and Regulatory Authority (APRA) tightened investment lending regulations in 2015, the loan-to-value ratio (LVR) for investment properties is often capped at 80% and could drop to as low as 70%. This increases the likelihood of incurring lender’s mortgage insurance (LMI) costs when purchasing your Victorian investment property.
At TPG Property Group, we offer access to an extensive database of diverse property options, giving you a wide array of investment opportunities to explore.
For staying informed about market trends, platforms like CoreLogic RP Data, domain.com.au, and realestate.com.au are excellent resources. They provide insights into property value increases and lending trends, helping you make informed decisions.
Additionally, SQM Research offers a vacancy rate database, enabling you to identify areas with strong tenant demand compared to others.
It’s crucial to select an investment property that aligns not only with your personal preferences but also with your financial objectives.
When planning to invest in property in Victoria, understanding the fees and taxes involved is essential. Your starting point should be the State Revenue Office. Unlike first-home buyers, investors are not eligible for benefits or exemptions, such as reduced stamp duty.
Stamp duty, now referred to as transfer duty, remains a significant cost. Calculated based on the property’s value, it can vary widely. The Victorian government’s stamp duty calculator is an essential tool for estimating your obligations and planning your budget accordingly.
Land tax is another critical consideration. This annual charge applies to properties valued above $250,000. For example, a property with a site value between $600,000 and $1 million incurs a base fee of $975, plus 0.5% of the amount exceeding $600,000. These costs are calculated based on the Valuer-General’s assessment and can significantly impact your investment returns.
Additionally, investors must budget for associated costs such as legal fees, valuation expenses, mortgage establishment costs, and property inspections. These outlays, while secondary, are necessary to ensure a smooth purchasing process and a thorough assessment of your investment.
Do It Yourself or Hire an Agent?
The key difference between owning an investment property and a first home is that the property will be rented out rather than lived in. You can either manage it yourself or hire a property management service.
Managing your Victorian investment property independently allows you to save on agent fees, but it requires a thorough understanding of the legal aspects. You’ll need to handle tenancy laws, bond lodgments, tenant screenings, and ongoing repairs. Additionally, you should be familiar with working with the Victorian Civil and Administrative Tribunal and must live close to your property to address any urgent issues that arise.
On the other hand, using a property management service comes at a cost but lets you enjoy the benefits of your investment without the hands-on effort. An experienced property management team, like ours, has expertise in handling various types of investment properties across Victoria, ensuring your property is managed efficiently and effectively.
Questions to Ask a Property Manager
Before entrusting a property manager with your rental property, it’s crucial to ask the right questions to ensure it is managed to a high standard. Here are some key queries:
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