Understanding the world of property investment
When you decide to become the owner of an investment property, you're opening up a door to another world. You might have previously bought your own home before, but property investment is another realm in itself.
As a homeowner, you've likely already got a good understanding of what interest rates are, what your borrowing power is and how to make an offer on a property.
But once you start investing in real estate, you'll come across other terms. Things like rental yields, tax depreciation schedules and a whole lot of other terms will need to be part of your everyday language.
Before you begin your prosperous venture in real estate, you'll need to obtain a decent level of property education so that you know what features make up a good investment.
Here's a rundown of some of the most common terms and phrases, and what they mean.
Gross rental yields
This is one feature of a property that investors definitely need to keep a keen eye on. A gross rental yield figure represents the return that a property will provide you, and is given as a percentage of the rental property's total value.
To work this percentage out, you multiply the weekly rent by 52 and divide it by the purchase price.
If a rental yield is quite high, it indicates that it's a cash flow positive property. However, as it's a gross rental yield, this figure doesn't always take into account all of the expenses associated with the property. This includes things like maintenance, rates or if the property sat vacant for a month between tenancies.
The amount of rent that your property can provide you is another key figure you should look out for. This amount is set by you, the landlord, but if you're new to property investing it's wise to consult a property manager for an accurate and appropriate estimate.
The figure you set for your rental should take into account the median weekly rent for your local area. You should also look at comparable properties nearby so you can get an idea of what your other landlords are charging. If your home has extra features, such as brand new appliances, a top of the line air condition unit or other things, you could even consider charging slightly more than homes that don't have these features.
If the value of your investment property rises over time, it's called capital growth or capital gain. This is a very important figure for investors, as it shows you how much profit your property could provide you once it has sold. Capital growth doesn't happen overnight, in fact it could take years – remember that good things take time!
Keep in mind that the amount your property grows over time is dependant on many factors such as where and when you buy. This is when working closely with a wealth coach to determine what kind of property can help you achieve your goals is invaluable.