People purchase rental properties for various reasons. For many, they take the plunge and purchase an investment property in Newcastle with the view of it being their path to early retirement. Here's our expert advice on how you can maximise your rental returns and start dreaming of ways to spend your days, post-retirement.
Utilise equity in your home
Equity is the difference between the value of your home and the amount owing on your mortgage. It's often a source of untapped wealth and by unlocking it, you can start or expand your investment portfolio.
The equity from your home or investment property can be used as a deposit on an additional property, while your current property becomes a security on the new debt. It also allows you to with no cash deposit or create a bigger deposit for your second property (and increase your overall buying budget).
It truly is one of the most powerful tools you have to start building a solid property portfolio and a great way to maximise wealth.
The importance of budgets and cashflow
Budgets and cash flow are critical components in ensuring you have a prosperous investment portfolio. To have a successful investment the cash flow should be positive after costs and expenses.
You should also consider your loan repayment strategy. Interest Only (IO) loans only require you to repay the interest portion (plus any fees) on the loan over the chosen IO period. Principal and Interest (P&I) loans are designed to repay your loan over the defined loan term.
Paying P&I makes sense when rates are low, as it allows you to repay the loan faster. However, IO can be a more enticing strategy to adopt for investors. This is done largely on the assumption the property asset is going to increase in value. It can also improve cash flow because you can use the principal component for other uses.
A well maintained investment equals higher rents and quality tenants
It's that simple – a well maintained rental will deliver higher rents and secure you quality tenants. Some landlords will also add value before the lease is underway – such as by renovating the kitchen and bathroom. You may also consider upgrading the fittings and amenities on offer (eg installing air-conditioning). This increases the value of the asset and ensures you can charge a higher rent and receive a premium return.
And remember, lengthy vacancies will thwart any desire to retire early. So, it doesn't matter how large or small the issue is, staying on top of these matters will ensure this lease is renewed again and again.
It's all about location and strategy
Purchasing in the right location and selecting your investment strategy (capital growth vs rental yield) is so important.
The good news is Newcastle is a great place to invest. According to this April 2020 property market update from Smartline, this is due to affordability and strong growth potential. The best performing pockets are Kotara, Islington, Charlestown, Waratah, Wallsend, Tighes Hill and Mayfield areas (all located within a 20 minute drive of the Newcastle CBD).
When it comes to your investment strategy before purchasing a property, you need to ask yourself: "Will my goals be more short term (ie. looking for higher rental yield) or long term (ie. looking for higher capital growth)?"
A high rental yield strategy is all about generating positive cash flow. It's also less risky which means the returns are not always as attractive. Properties with higher capital growth are found in areas where demand exceeds supply. This usually occurs in suburbs close to work opportunities, amenities, public transport and infrastructure.
Do your research and don't purchase in a Newcastle market saturated with vacancies. Look at regions where there is a high demand for rentals but only limited properties available.
Choose an exceptional property management team
There's no better way to ensure your investment increases in value than by entrusting its management to an outstanding team. Exceptional property managers are trained to minimise risk and ensure higher returns and less issues. And remember, the cheapest is not always the best.
Our highly qualified team of Newcastle property managers, who are recent finalists in the REB Business Awards and the REINSW Awards will secure excellent tenants and rental returns.
If you'd like to experience the difference a dedicated Newcastle property manager can make in securing your ticket to early retirement, contact us via casey@c21newcastle.com.au or 02 4928 7400 today.
Disclaimer: This is not tailor advised and we suggest you speak with a qualified trained professional as everyone's circumstances are different.