With the tightening of bank lending making its presence felt in the market and continued speculation of a property market bubble, the Property Investment Professionals of Australia (PIPA), has developed 5 tips for property investment success in 2016.
PIPA’s chair Ben Kingsley said well-selected property continued to present a sound investment choice for savvy investors who do their due diligence and seek advice from professionals.
“Buying a property is one of the biggest purchases most people are likely to make and many still view property as the key vehicle for their retirement savings nest egg.
“In spite of APRA’s clampdown on investor lending, investment loans remain affordable on an historic basis so the opportunities are there for the taking. Property investors need to empower themselves with information to guide them on how to make the best decision possible in a more complex borrowing and investment environment.”
PIPA recommends the following top tips to help investors navigate the property market in 2016.
1. Do your research and be prepared to ‘shop’ outside your home state
Doing your homework and some thorough research is more important than ever before when looking for an investment property. Although some markets, such as Sydney and Melbourne are extremely hot, the Australian property market is made up of many, many markets and smarter investments can be made elsewhere. Borderless investors, i.e. those who are prepared to look beyond their home state, will definitely be the theme for those in the Sydney market. The key to becoming borderless is research. To ensure a smart buy in any market, it is essential you research extensively before making any property investment decision. Some independent information from sources such as RP Data, Realestate.com.au or Domain can give you a good idea of the investment performance outlook in these areas, such as average rents, property value and demographics.
2. Don’t be afraid to drive a hard bargain
The property finance arena and lending landscape have changed over the past few months. As one of the highest value transactions you can make, shopping around is the best way to find the most attractive and ideal loan. There are some rate comparison services available to help you find the best loan deal. Better still, a savvy mortgage broker can be an invaluable asset to help you secure appropriate finance, especially when some of the banks have tightened up their lending policies. A professional mortgage broker will be able to do the research and provide you with the options.
Don’t be afraid to ask hard questions and don’t be afraid to ask for a discount. You may be surprised to find that many lenders are willing to give you a discount to get your business.
3. Be creative – consider rentvesting or co-ownership
In hot markets, smarter investors are always looking for ways to outsmart the competition. ‘Rentvesting’ has become a popular way for young people and some first timers to beat affordability issues. With this approach, you can still live in a more expensive location, where the cost of renting is less than paying an owner occupier mortgage. Then you can invest in another more affordable location, where you’ll get help paying off your loan in the form of rental payments by your tenant. The benefit of ‘rentvesting’ is that you have at least one foot in the property door, so your money is working harder for you. And in the meantime, you can still live where you want to.
If you have a family member or a close friend who is also keen to crack the property market, you may want to consider co-purchasing. Co-ownership can be a powerful way to beat affordability constraints too, but make sure you set up a formal agreement between parties so everyone goes into the investment with their eyes wide open.
4. Be strategic and look to the long term
Investing in property should always be considered a long-term investment, unless you are looking to speculate it, which we would recommend against. It is important to consider each and every property purchase ‘another important step’ in your financial journey and select every property based on how it will add to your overall wealth and retirement plans. We’d recommend investors conduct an annual review of property investment portfolios, as part of an overall long-term investment strategy.
Property is not transactional – it is a high-cost, long-term investment strategy. You need also to make sure that you can afford to service your mortgage repayment over the long term.
5. Seek professional advice
Property investing, unlike other asset classes such as shares, is not recognised as a ‘financial product’ by ASIC, and remains without any regulatory framework. Unfortunately this offers unscrupulous operators and spruikers the chance to make significant financial gains and tempts many to put their self-interests ahead of their clients’ best interests.
To avoid becoming a victim to any unscrupulous operators, you need to seek professional advice from someone with formal property investment qualifications, such as a QPIA (Qualified Property Investment Adviser). In an unregulated property market, the PIPA logo offers you confidence that you are dealing with a trusted professional.
NOTE TO EDITORS
The Property Investment Professionals of Australia (PIPA) is a not-for-profit association established by industry practitioners with the objective of representing and raising the professional standards of all operators involved with property investment.
Since its inception, PIPA has developed codes of ethics and conduct and professional standards of accreditation and education for the property investment industry, including a Property Investment Adviser Accreditation Course.
PIPA is actively lobbying the federal government to bring property investment advice into a regulatory framework. Until such regulation is introduced, PIPA will continue to provide the public with warnings about working with ethical and professional industry practitioners. For more information visit www.pipa.asn.au
Ph: 02 8248 3753