The term "buy-to-let" simply means the purchase and ownership of a property through normal purchase procedures and when completed, the owner seeks to rent this property out for a regular income often exceeding annual mortgage repayments.
The Buy-to-Let Market in Australia
Australia offers a strong rental market for investors. The fact is that most Australians are finding property beyond the boundaries of affordability, with prices at prices some three or four times their salaries. Consequently, investors are identifying an opportunity for potential profit from rental investments, while the private rental market provides housing for about 29% of all Australian city households, far outweighing the public sector, that accommodates a mere 6%, according to the Australian Bureau of Statistics.
An additional factor in favour of investors in the buy-to-let market in Australia is the increasing interest rates and consequent consumer inactivity that leaves some properties unsold. These slow to move properties offer the opportunity to buy at reduced prices that investors can negotiated down, and many present great rental investment opportunity. Investors must of course be sure to have selected within popular locations, for example where schools are good, commuter links are easy and lifestyle is desirable, or where a good tourist infrastructure is in place in a year-round resort.
Today, demand for rental accommodation in certain pockets across Australia is outstripping supply, creating the perfect environment for buy-to-let investments, increased rental rates and strengthened rental yields for investors in the right locations.
Buy to Let (Example Only)
John decides to purchase an investment property and after joining IPIN Global and discussing his requirements with our investment experts, he decides that the buy-to-let investment strategy is for him.
John has savings of around €80,000.
Our investment advisors suggest property development X which has been vetted by IPIN (IPIN Global) as a solid investment opportunity and meets with John's deliverable criteria.
Investment property X is a new development with beautiful sea views and priced at €250,000.
Initially John pays his reservation fee of €3,000 to hold the property.
Next John pays a 30% deposit of €75,000 (minus his €3,000 reservation fee already paid)
Our investment specialists negotiate a mortgage for John for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5,772.00 over 12 months.
John starts to rent his new property immediately and during the 3 months "High Season" he receives €2,000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leaves John with 9 months of rental potential to make a further profit.
If we assume that average rental rates for John’s new property are as follows (conservative figures):
- High Season - €2,000 Per Month
- Low Season - €1,300 per Month
Now we assume that John decides to go on a short term rental strategy maximizing his income over the High Period. He easily rents his property for 3 Months during the high period earning €2000 per month. After this period he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 Months only.
- 3 Months x €2,000
- 6 Months x €1,300
Total Rental income = €13,800 after subtracting the €5,772 Mortgage repayments John has made a profit of €8,028.
* During this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the Internet this is very achievable.
Short-Term Letting v Long-Term Letting
The final decision to be made by the buy-to-let investor is which letting strategy to use. It is obvious that the highest income is made by the property owner by short term letting during the high season. However you must bear in mind increased overheads due to constantly finding short term rental clients, as well as maintenance costs between clients.
Long-term rentals typically pay less per month but usually require far less input from the property owner. Some property owners choose to rent long-term during the low season, then short-term to higher paying tourists during the high season. The decisions to be made regarding your letting strategy are usually answered in part by the type of property you purchase.
The buy-to-let strategy is an important formula to get correct as even in a very busy market there is still competition. In order to maximize occupancy rates it is vital that you correctly select your location, property, unit and monthly rental charge as these factors will directly effect occupancy and, in turn, your rental income.
This type of investment brings the added benefit that during the time your property is being rented out and earning you an income, it is still appreciating in value at one of the fastest rates available, while someone else is paying your mortgage. Meanwhile it is providing an off-peak holiday home for your personal enjoyment.
Buying-to-let is catching on fast amoungst purchasers of investment property in Australia and are now considered to be a very sound investment decision.