Getting into property investment can be a rewarding experience both financially and personally — especially if you choose to make your first property a specialist disability accommodation (SDA) property. SDA properties provide investors with the opportunity for excellent income yield and capital growth opportunity, all while providing Australians with disability the chance to find a forever home that adequately supports their complex needs.
Whether it’s a standard residential real estate investment or a benevolent investment property through the SDA scheme, these five tips are valuable to know for first-time property investors.
1. Know your budget before relying on rental income
Property investment can feel enticing due to the expected rental income that you’ll receive on your property. While it’s a common strategy to use the income generated from your property to help cover any investment loan repayments you have against the property, it’s important to know how property investment is going to fit with your existing budget — especially if the income stops flowing in.
In fact, knowing your budget prior to purchase is incredibly important also. Firstly, if you have an existing mortgage, then chances are that your mortgage payments will have recently risen due to rises in the target cash rate. It’s vital that you comfortably meet all of your existing financial commitments before taking on an investment property.
Real estate investing also includes costs outside of the purchase price. For example, during the purchase process, you encounter legal fees, fees to a real estate agent, land tax, property expenses such as termite and pest inspections and loan establishment fees. Then there are the ongoing costs to consider, such as property management fees, maintenance costs, landlord insurance, building insurance, council and water rates, accountant’s fees, and of course, loan interest charges if you’re borrowing money to purchase your first investment property.
Knowing all the costs involved can help you understand the impact of real estate investing on your cash flow both now and after you start to collect rent payments.
2. Understand your property investment strategy
An investment strategy isn’t just for those investing in the stock market or other asset classes. It would be safe to say that every successful property investor has gone into investment real estate with a strategy in mind. Whether this is an income-orientated strategy, or a capital growth strategy, knowing which approach you’re going to take is vital as it will help guide your decision making when it comes to selecting the right property to suit your needs.
Your strategy around property investments may also include the financial strategy, such as whether you’re going to positively or negatively gear your investment. Negative gearing is where the total annual rental income doesn’t cover all of the expenses of the property. Positive gearing is the opposite, where the total rental income exceeds all costs and expenses of the property over the course of the year. There are pros and cons of both strategies, however, it is always prudent to seek financial, taxation or property investment advice before implementing financial strategies.
3. Do your market research before choosing an investment property
As we mentioned above, your investment strategy and budget will largely guide the property that you purchase. First-time investors in the property market can get caught up in the aesthetics of a property, or making an investment choice that is guided by how much they ‘like’ the property, rather than assessing the property on it’s merits as an investment-grade property.
Talking to real estate agents, participating on forums for real estate investors and conducting your own research can be a great way to understand property prices and rental demand to get a feel for the market. It also pays to research things like your legal obligations as a landlord.
Top tip: If you’re looking at investing in an NDIS investment property, using the SDA demand data tool can be a fantastic way to narrow down the most viable SDA property type and location for your investment.
4. Investigate potential tax implications
Just like any large financial decision, there are tax implications of purchasing an investment property. However, the implications can come in the form of tax benefits (such as the ability to claim tax deductions for property expenses against the taxable income it generates). However with property values on the rise recently, it’s important to know when you need to pay tax on your property, such as land tax or when you make a capital gain and sell the property (capital gains tax).
An accounting professional is generally the best person to speak to around the tax implications of your property, however the ATO does also have some helpful information about tax and investing in property.
Did you know: The property value of an SDA property typically has the same capital growth potential of any other residential investment property?
5. Consider who will manage the property
Taking on the job of managing an investment property is a big ask. For retired property owners, this may be feasible, however, most landlords use property managers to manage their rental property. Not only is this a huge time saving, but a property manager understands the legislation and process for leasing and can act as a middleman between yourself and the tenant.
Like most services though, it may take some due diligence to find a property manager that you connect with and are comfortable in allowing to manage your first property.
For those that are purchasing an NDIS investment property, it may be smart to use an accredited SDA property manager due to unique leasing structure and legislation that governs the property. SDA providers typically aid in providing specialist NDIS property managers.
Investing in property with Apollo Investment
Regardless of whether this is your first property investment, or the next addition to an already-established property portfolio, rental properties under the SDA scheme may represent an incredible investment choice. SDA properties typically rival the income yields of the best industrial real estate investment properties in Australia, and they also generally come with attractive capital growth opportunity. Additionally, they provide purpose-built dwellings that become forever homes for Australians with extreme functional impairment, and help keep them from ending up in nursing homes prematurely.
If you’d like to start your property investing journey out with socially-focussed choices and assistance from a team who are specialists in NDIS property investment, then reach out to Apollo Investment to understand more about how we can help.