Thinking of investing? Read this first
1 February 2023"REIWA President Joe White offers his advice to first time property investors."
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WA desperately needs more investors and current market conditions offer some great opportunities. If you are thinking about investing, I encourage you to do your research and choose wisely.
Plan for the highs and lows
The property market is cyclical and you need to make sure your budget can cope with periods when rent prices decrease. There may also be times when your property is vacant and not earning an income.
Factor in interest rate rises; rents aren’t set based on mortgage repayments they’re based on what the market will pay. In addition, there will be other expenses such as repairs and maintenance, council and water rates.
Know your reason for investing
Do you want to minimise tax via negative gearing, earn extra income, develop or achieve capital growth? The answer will affect where you buy and the type of property.
For example, if you’re looking for additional income you will want to positively gear your property by ensuring the rental income exceeds loan repayments and operating expenses.
If you want capital growth you should be prepared for market fluctuations. Property prices were stable for several years pre-COVID. Many WA investors had negative equity in their investment property and have only recently been able to sell and break even or make a small profit.
If development is your strategy for income creation, look in areas that allow subdivision and have appropriately sized blocks. When a property is listed on reiwa.com you can use the interactive maps to check block size and zoning.
Buy what tenants want
To be successful as an investment a property must appeal to tenants.
Speak to an agent or property manager about demand for rentals in the suburbs you are considering and the types of properties tenants look for. For example, it may not be wise to buy an apartment in a suburb that mainly attracts families.
Seek expert advice
Talk to your accountant about your investment strategy. Negative gearing may sound good, but it may not be right for you. Find out what is tax deductible and what isn’t and get a depreciation schedule prepared after you purchase a property.
If you are investing in another state or regional area, be wary of making decisions based on video tours and website information alone. If you can, get some local advice, ask someone you know to inspect the property, and have building and pest inspections done.
Watch out for anything that seems too good to be true. Many WA investors are still holding onto investment properties in Queensland mining towns that are in negative equity and have seen rents decline.
Get your property professionally managed
Property managers know the market well and can help you negotiate a fair rent with the tenants based on current conditions. They are also a liaison between you and the tenant and are well-versed in the extensive regulations that apply to managing a property. The cost is tax deductible.
See the current listings of homes for sale in Perth and regional WA.
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