So, You Want To Buy An Investment Property In 2022
Was ‘Buy an investment property on your 2022 New Year’s resolution list?
Brisbane’s median dwelling price has lifted 19.9% over the past 12 months and an incredible 17.4% in the year-to-date. A rise of 2.9% in November 2021 brought it to a new cyclical high, according to CoreLogic’s latest Brisbane housing market update.
If you’re ready to buy your first investment property, Brisbane is a strong bet. A two-speed housing situation is beginning to emerge in Australia, with Brisbane and Adelaide looking set to buck the trend of a 2022 slowdown currently being experienced in Sydney, Melbourne and Perth. Positive rates of interstate migration have helped to fuel demand throughout the pandemic.
Decide on your goal
Are you looking for long-term capital gains or steady rental income? This can, and should, influence what you purchase. A small studio or one-bedroom close to the city may prove better for reliable rental income while a house in an up-and-coming area may be a better long-term investment. Ideally, a mix of both capital gain and income will help protect you.
Research, research, research
Becoming a smart property investor is all about research and lots of it. When deciding on the best area to buy in, in addition to researching market prices and broader property trends for Queensland and Brisbane, you’ll want to take into account factors that may influence future price growth, such as planned improvements to infrastructure (new railways, light rail or motorway extensions, for example) and further amenities (think restaurants, shops, schools, hospitals, etc). Is there an oversupply or undersupply of the type of property you’re looking for in the area you’re looking to buy in? And what type of properties are renters looking for in this area? Use your head, not your heart. An investment property is ultimately a business decision.
House or unit?
Investors frequently select units because they can be both more affordable and easier to manage with less maintenance. If you are looking for a freestanding home, look for those close to schools, shopping areas, parks and good public transport. If looking for a unit, consider factors such as pools and gyms within the complex, proximity to the city or beaches. You’ll also need to factor in strata levies.
Location, location, location
Pick a prime location and you’re set for a good investment long-term. However, if suburbs close to the city are out of your price range, the so-called ‘middle-ring’ suburbs can often be a good bet. That is, those that are around five to twelve kilometres out of the city, such as Brisbane’s Murarrie, Rochedale and Wynnum West. Once you have a short-list of areas where you’d like to buy, start tracking sales prices in the area.
Know the value of your investment
Brisbane now has the highest median house rents in the city’s history after prices climbed 12.5 per cent over the past year. Median house and unit prices in an area can tell you whether its value is rising or falling. For example, median house prices in Bulimba, which is close to the city but with a charming village feel, have ranged from $1,457,000 for houses to $650,000 for units over the past 12 months according to realestate.com.au. Houses in Bulimba typically rent out for $885 PW with an annual rental yield of 3.2% and units rent for $503 pre week with a rental yield of 4.0%.
Understand rental yields
Most investors want their property to generate income for them and yields give you an idea of whether yours is likely to be profitable. There are also ways that you can boost your rental yield. Current figures from SQM Research shows strong Brisbane yields, with houses at 3.4% and units sitting at 5%.
Calculate costs and real returns
Your real rate of return is the sum of the rent (gross yield) and capital gain minus the costs of the property. For example, if you are getting a 4% rental return and a 10% capital gain each year, your total return on investment is 14% less costs.
The costs of being a landlord include:
Council and water rates
Maintenance and repair
Insurances, including landlord’s insurance
Property management fees
Strata fees and levies (for a unit or townhouse)
Interest on your loan
Land tax
Negative gearing and tax concessions
Negative gearing is borrowing money to buy a rental property where the net rent does not cover the interest payments and other costs of running the property. There are tax benefits related to negative gearing, but for other investors, a positively geared property could be more desirable.
Talk to the professionals
Once you have an investment property, talk to an experienced property manager who can take the stress away and manage your investment to maximise your returns.
Looking to buy an investment property in Brisbane? Our team has a wealth of experience in specialist property management that can help you on your journey, contact us today.