As the saying says, ‘Only fools rush in.’ So, rather than jumping into the investment deep-end and hoping you can swim, take your time. Define why you’re buying and what your overall goal is as an investor. Then, tour the market at a leisurely pace. Make sure you note the sites and learn from the experience.
- Create a plan – know what you’re investing in and why.
- Understand cash flow – work out what you can afford.
- Move beyond hidden agendas – develop your own strategy.
- Know the market – don’t second guess anything.
- Ask questions – learn about an area from local sources.
- Look at lots of property – visit suburbs and open inspections.
Buying an investment property without a plan is a no-no. As the saying says, ‘fail to plan, and you’re planning to fail.’ Accordingly, to find the right investment property, you need to know why and what you’re buying.
Start by asking yourself?
- What do you want to achieve? – financial freedom, retirement income, stability.
- What type of property will help you achieve this? – unit, apartment, home.
- Where are you looking to buy? – locally, in another town.
- What’s your budget? – realistically what can you afford?
- What type of cash flow suits you? – negative or positive.
Most investors don’t have a fully-formed plan when they start out. Instead, they have an idea. Following this approach, often results in selling an investment property well before making capital gains.
One of the biggest mistakes an investor makes is not having enough cash flow. By not crunching the numbers before buying, a negatively geared property can cost far too much financially. Therefore, work out what you can afford to pay weekly, then set your buying around this figure. Just make sure you factor in all ongoing property costs -council rates, emergency services – not just covering the mortgage.
How to estimate cash flow?
- Calculate annual property costs – interest, rates, insurance, maintenance.
- Estimate total income annually – rent.
- Deduct the costs from the total income.
- If you’re left with a positive amount, this is your annual income.
- Should you have a negative amount, then this is the amount you’ll need to pay.
Your friends, family, neighbour and internet gurus all have different property investment strategies. Consequently, each of these approaches suits their personal and financial goals. But, they may not suit yours.
How do I avoid hidden agendas?
- Listen to advice, but don’t believe it’s the only way.
- Consider the commentator’s position – are they selling the property?
- Think about partiality – is the information biased?
- Stick to your strategy.
The market should be your guide. For that reason, listen to it often and visit it regularly. Overall, get to know it’s cycles and rhythm.
How can I listen to the market?
- Research your chosen property buying area.
- Talk to three property managers in the area – ask which property is in demand.
- Don’t take advice from a selling agent.
Buying an investment is a long-term decision. Consequently, find out more about an area, before buying. Visit the areas you’re interested in and review them critically. Look at the amenities, public transport and get a feel of the area.
Who should I ask questions?
- Ask locals what they like and dislike about the area.
- Visit local agents and ask them what’s selling and renting, and for how much.
- Stop by the local council and discuss what they have planned for the region.
Jump in your car and visit loads of open inspections. Narrow down what type of property represents the best value.
How can I determine which property is better?
- Write down notes about the property.
- Wait to see the property’s selling price.
- Follow the market for 6-months, before buying.