As 1.5 million property investors around Australia will tell you, buying an investment property involves much forward planning, not unlike the purchase of a family home. But while the decision to buy a family home is usually very emotive, buying investment property should be based on a logical and calculated process.
Investors have to remember that whereas a family home is a purchase from the heart, an investment property is very much a purchase from the head.
To minimise the risk of getting stuck with a bad investment the REIQ recommends buyers do their homework and research the area they intend investing in. The REIQ recommends investors:
Check local newspapers
Talk to a real estate agent in the area
Contact the local council and Main Roads Department
Research the Body Corporate (if applicable)
Seek financial advice
Re-evaluate regularly
Foreign investors will also need to be aware of the Australian Federal Government's Foreign Investment Policy.
Check the local newspapers
Find properties with similar features and compare their prices. There will of course be some homes that are worth more than others because of certain attributes, such as a view. But this simple research should prove a valuable guide to determining what is on the market, and at what price.
Talk to a real estate agent in the area
A good agent should be able to provide buyers with informed opinion on prices and market trends. They should also be aware of the property types that tenants are looking for and how much particular types of property should return in rent.
Contact the local council and Main Roads Department
It is also recommended that potential investors contact the local council and Main Roads Department to determine whether they are planning any major developments in the area.
Your perfect investment may soon not be so perfect when you find out a freeway overpass is being planned for your back yard.
In many cases a solicitor should be able to supply you with a list of all the searches necessary for prudent purchase. However, it is worthwhile asking for an extensive list of searches and picking out the appropriate ones for your purchase as solicitors will act only upon your instruction.
Research the Body Corporate (if applicable)
If you're investing in a unit or townhouse or any lot in a community title scheme, it may be worthwhile getting a reputable search agent to obtain and appraise the Body Corporate records. A search agent will provide you with a comprehensive written report on the state of affairs of the building, allowing you to make an informed decision to purchase.
Seek financial advice
Seeking the advice of your accountant, financial adviser and bank is also a good tip. Each will assess your investment according to different criteria and together will provide a broad picture of the financial feasibility of your investment.
Even if you're a first time investor, property investment should be considered and managed as part of an investment portfolio and, unless you're a seasoned property investor, independent advice can prove invaluable.
Like any other investment, you need to consider how much you can invest, what the goal of the investment is and how long you want to hold the investment. For a good return on property, buyers should be looking towards the medium to long term (five to 10 years).
Re-evaluate regularly
Another important factor to take into consideration is to remember, like any investment, property and the market conditions affecting it, must be monitored and re-evaluated on a regular basis.
While there are many avenues of investment in today's marketplace, a well-researched investment in property is still, and always will be, a stable and financially rewarding investment.
Not only does a buyer need to know what price they can expect to pay but they also need to be aware of what sort of return they can expect from their investment. Making sure you buy the right property makes it not only easier to rent out, but makes it easier to sell when the need arises.
For foreign investors
The Foreign Investment Review Board (FIRB) and the Real Estate Institute of Australia (REIA) have prepared a summary of Australia's Foreign Investment Policy as it relates to acquisitions of residential real estate in Australia by foreign interests.
The policy covers developed residential real estate, residential real estate for development and off-the-plan purchases. A copy of the summary is available by selecting the link below:
Foreign Investment Policy - Summary for residential real estate
Previous Changes
The Federal Government implemented changes to the Foreign Investment Review Board regulations for foreign investment in Australian real estate, on 10 September 1999. The following is a summary.
- Increase the notification threshold for foreign investment in existing businesses from $5 million ($3 million for rural businesses) to $50 million;
- Remove foreign investment approval requirements for individuals, who hold or are entitled to hold a special category visa and invest in Australian residential real estate through Australian companies and trusts;and
- Increase the limit for which applications for investment in businesses are registered but are generally not fully examined from $50 million to $100 million.
Vacant land and house packages
Acquisitions of residential real estate (including vacant building allotments and house and land packages where construction has not commenced) for development by foreign interests are normally approved subject to a specific condition requiring continuous construction to commence within 12 months; once construction is completed, parties are required to provide the completion date and actual development expenditure. To be eligible for approval under this category it is expected that a minimum of fifty per cent of the acquisition cost or current market value (whichever is higher) be spent on development.
Non-residential commercial properties
Where properties are not subject to heritage listing, the notification threshold applying to the acquisition of developed non-residential (ie, it is not an accommodation facility) commercial properties will be raised from $5 million to $50 million.
In addition, acquisitions of developed non-residential commercial properties, valued between the notification threshold and $100 million, will no longer be subject to detailed examination, unless the facts of the proposal raise issues pertaining to the national interest.
Integrated Tourism Resorts
The policy of designating Integrated Tourism Resorts (ITRs), within which foreign persons are permitted to acquire residential property without restriction, will only apply to developed residential property leased back to the resort operator to be available for tourist accommodation when not occupied by the owner. Owners of residential property in existing ITRs will retain their current entitlements.
Strata titled hotel accommodation
Sales will be permitted to foreign interests of strata-titled hotel rooms in designated hotels where each room is subject to a long-term (10 years or more) hotel management agreement. The hotel management agreement must limit the owners' rights to an income stream, not occupancy. The management must retain ownership of the common property. In addition, owners will not have the right to opt out of the management agreement. The hotel must provide a full range of facilities consistent with industry accepted hotel features.
Australian citizens and foreign spouses
Australian citizens and their foreign spouses buying as joint tenants will no longer be required to seek approval for purchases of residential property in Australia.
Foreign trustees acquisition of interests in urban land
Exemption will be given for the acquisition of interests in Australian urban land by foreign-owned responsible entities acting on behalf of managed unit trusts and other managed public investment schemes registered under Chapter 5C of the Corporations Law, where they are investing for the benefit of fund investors or unit holders ordinarily resident in Australia. This is consistent with the rules applying to foreign-owned life insurers and superannuation funds.
Click here to view the entire Foreign Investment Policy Summary
