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10 Ways to Maximize the Return on Your Property Investment

Climbing up the property ladder with the help of an investment property is a smart move, provided you are geared up for the challenge, and you know what to look out for to avoid potential shortfalls.

Many say the property market is tight, meaning you can invest into property at any given time and not risk a financial downfall. While theoretically this might be true, given the fact that most markets grow and fall in a 7-year cycle, many investors go bust. So why do some people stand to make millions with properties while others lose the last pair of pants they own?

Find out by reading on…

# 1 – Look for potential, not appeal

Plenty of property investors make the mistake of looking at a house with their goo goo eyes. Unless you plan on living in the property (and that would be silly if it is an investment property), do not fall into that same trap.

You need to view the property with its potential in mind. Forget the heaped-up dirt pile, forget the shaggy carpet and the fact that the paint is peeling off the wall. How does the property look when you envision it with a clean coat of white paint?

Where is it positioned? Is it near a school or university, near the beach or close to shops? Answers to all of the above will define the true potential of a property.

# 2 – Shop around

It is rarely a good idea to pick the first property you come across. By shopping around you will get a good feel for the local market. It will enable you to accurately determine the true market value of your chosen property, avoiding inflated price tags. Try to keep watch of the properties you’ve visited. You might want to go back again for an additional inspection. Keeping all the necessary details handy will help you to stay organised.

# 3 – Pick the right investment loan

You can choose from three types of investment loans; line of credit (you borrow against the worth of your home), fixed interest rate and variable interest rate. Speak with your bank manager about your best option.

# 4 – Make sure the property is not ridden with mice or termites

The best investment you can make into a potential investment property is to pay for a pest inspection. You should also inspect the property several times during different times of the day and check for the following:

  • Leaky pipes – expensive, especially if they are hard to access (i.e. behind walls)
  • Mould, musty smells – potential water damage or dampness
  • Cracks in walls – expensive if they are structural
  • Adjoining bathroom walls – to check for leakages
  • Termites – pest inspection!
  • Excessive noise – make sure you understand what you buy

# 5 – Get your legal affairs in order

Make sure you deal with a solicitor when you sign any documents. As soon as you make an offer on the property you need to see your lawyer. He will do the necessary title searches on the property and more.

# 6 – How is your property geared?

If the expenses of your investment property are higher than your income from the rent you can negatively gear it (say your loan repayments are $500/week but you only earn $430/week in rent you are paying out-of-pocket expenses). This has tax benefits. To see if this is a viable option it is best for you to speak with your financial advisor.

# 7 – Budget for capital growth

When you are ready to sell your investment property remember that you will be legally accountable to pay capital gains tax on the increased value. A lot of people conveniently forget this fact, and are therefore caught out financially when the tax man comes calling.

# 8 – Consider a strong rental property

If your investment property is empty it will end up costing you money. You want to make sure you pick a strong rental area to increase your chances of income returns.

# 9 – Equity = more buying power

If you already have a mortgage you might be able to borrow against your existing equity (any money you have paid off your loan). This can give you increased buying power and therefore less hassles when you negotiate the financial aspects of your loan with your lender.

Be warned, only borrow what you can comfortably afford if you were to lose your job tomorrow. If you can’t put food on the table because there is no existing emergency fund you might be best advised not to dream about owning an investment property at this point in time.

# 10 – Consider sticking around

Most property markets cycle every 7 years or so. You should plan to hang around if you want to see a maximum ROI. This is even more important when you buy a property in a strong economy. Chances are the prices are at their highest, therefore giving you very little return if you plan on selling 6 months down the track. Be wise – and stand to make a dime.

This post was submitted by William. William writes about personal finance and investment for a mortgage comparison website offering a range of competitive investment loans and other financial products to consumers