For many people, buying their first investment property can be an overwhelming experience. In Australia, only 7.9% or 1.7 million of the population (RP Data and Census Data, 2011) own an investment property. This is sadly a small percentage however, it comes as no surprise as first time investors are often intimidated by the process and quit before they start.
Investing in property is fairly straightforward. More importantly, it should be an experience that’s met with excitement, not fears or doubts. Here are some tips on how you can get started.
Evaluate your finances
First things first, you will need to know how much cash you have available to invest. Ideally, you will need to have saved a deposit.
List all your assets, including incomes and work out your expenses. Don’t feel discouraged and assume that you can’t afford to invest. As long as you have a stable and reasonably good paying job with solid employment history, you shouldn’t have any issues getting a loan for your investment.
Consult with an experienced and trusted mortgage broker. A good broker will advise you on your borrowing potential and how best to structure the loan. Talk to your accountant too as they can advise on how you can minimise tax on your investment. An accountant can also help you work out what repayments you can afford. This is critical as with many good investment properties, the rent alone might not be enough to cover the mortgage and other costs.
When working out your budget and repayments, remember to include the purchasing costs. These include stamp duty, legal costs, mortgage insurance (if needed), strata report (if you’re buying an apartment or townhouse), and building inspection. These can add up to around 5% of the purchase price of the property.
Once you’ve had a good look at your finances, speak to your mortgage broker about getting a pre-approval. Having a pre-approval can increase your negotiating strength and enable you to put all your cards confidently on the table. Avoid applying for multiple pre-approvals. Each time you apply, the lender will check your credit record. Having multiple applications may be considered a red flag, resulting in the lender disapproving your application.
Determine your goals
What do you want to achieve by investing in property? Most people get into property investment to secure their financial future or even achieve financial freedom.
To achieve your goals, you need to articulate them then set a timeline. Are you looking at replacing your income and retiring on your investment in 10 years? Create a 10-year plan and break it down into yearly, bi-annual, monthly or even weekly goals. This will keep you on track and empower you to achieve your goals without being overwhelmed or stressed by the enormity of the task.
What you need to know before buying a residential property
Download this handy Due Diligence Checklist published by Consumer Affairs Victoria to help you consider some of the many aspects that go into choosing the right property.
Create a purchase plan
Why is having a purchase plan important? An excellent, intelligently constructed purchase plan can help you achieve your goals and grow your investment portfolio. It can also serve as a blueprint for you to follow and stay on track of your property investing goals.
When creating a purchase plan, first define your strategy. There are three strategies often employed by property investors and advisors:
- Capital growth strategy – purchasing property with the expectation that it will increase in value over a period of time.
- Cash-flow strategy – the focus is on cash-flow, so the investment property should ideally earn more rental income than the cost of mortgage, property management, rates and other maintenance costs.
- Renovation – the investor actively looks for and buys properties that they can improve to boost value or rent.
Your strategy will then guide the next steps in your purchase plan such as setting up your criteria (location, age of property, etc.), doing your research, refining your list, getting appraisals, doing your due diligence, and making an offer.
Do your research
Knowing the market can be key to making the right investment choice. Be wary of get-rich-quick schemes or property peddlers. No one can make guaranteed returns and overnight riches. Set the time to do your research, talk to experienced investors or experts in the property market. There are also tools available to help you make informed decisions. Keep in mind that if an offer sounds too good to be true, it most probably is.
Consider working with a buyer’s agent
For many people, getting started in property investment is a daunting task. Going through the process, doing paperwork, and navigating through the unfamiliar market may be enough to discourage first time investors. If you need help purchasing your first investment property, consider working with a buyer’s agent.
A buyer’s agent can help simplify the process and provide strategic, market savvy advice that will increase your chances of greater returns. With their market knowledge, they can also give you access to unlisted properties and help you purchase from locations that are best aligned to your goals and budget. Finally, a buyer’s agent will work solely for you as they have no affiliations with real estate agents and other vendors. This means you are working with someone with no vested interest and will therefore prioritise your needs and objectives.
Property is still regarded as one of the safest long-term investments you can make. Yes, it will involve processes, paperwork, and big decisions that might overwhelm you, but help is available if you need it. At Prime Estate, we can assist in making the process of purchasing an investment property easier. From helping you establish your goals through to managing your investment property, our services are designed to give you the best chance at property success.
Category: Property Investment
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