Monday, February 04, 2013

Is buy-to-let still a good strategy?

Buy-to-let has always been an appealing investment option, even more so with the current low rates and the stock market still in an unpredictable state.

The criteria of course is to have a sufficient deposit, so if interest rates move you can still earn a reasonable return on the property as capital value is not increasing to the degree it used to.

Many investors who bought at the top of the boom and with high interest rates are struggling with negatively geared properties. Rental priorities are subject to unexpected costs at any time. If a tenant leaves with unpaid rent or damage that a bond won’t cover the investor is left having to pay out of their own pocket.
However the lower house prices and improving mortgage deals are luring investors once again.

With the flood of sale properties on the market this has meant greater choice for tenants and rental rates have stabilised and in some cases have gone down.
Of course there is no one hundred percent guaranteed return investments for those who prefer property to the stock market then bricks and mortar is still a good option.

That is, as long as you follow some tried and tested rules...

1. Research the market
Make sure buy-to-let is the investment you want. Consult a financial planner to determine where your money will perform best for your situation.

2. Choose an area that has wide appeal for tenants
Wide appeal does not mean most expensive or cheapest. It means a place where people would like to live and this can be for a variety of reasons. 

Is it close to public transport, schools, and lifestyle facilities? Asking yourself the question from the perspective of the potential tenant, not where you would live. But they are probably the most important aspect of a successful buy-to-let investment.

3. Do your sums
It isn't just about "can you afford to pay the mortgage with the rent?" or "can you get the loan?" You need at least three months rent up your sleeve and have sufficient insurance to cover bad tenants or periods without tenants.

Then there are maintenance and upkeep costs. A hot water service will set you back at $1,800 - $2,000, so you need to have sufficient funds to cover it as tenants are entitled to basic services.

A buy-to-let is still a good strategy, just remember to research, find the right property and do your sums.

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