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 to find the right investment property. 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 take notes and explore real estate sites, as well as attend open inspections and auctions, so you learn from the experiences.
Set Yourself a Goal
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.
So, where do I start?
Begin 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/city?
- What’s your budget? – realistically what can you afford?
- What type of cash flow suits you? – negative or positive?
- What lender and loan type? – a major bank or a broker; interest-only or principal and interest?
- What type of investment structure? – self-managed super, trust, or in your name?
- What professionals do I need? – accountant, conveyancer, mortgage broker?
Most investors don’t have a fully-formed plan when starting out. Instead, they have an idea. But, by using this approach, many investors find themselves selling an investment property well before making any capital gains. However, smart planning can see you avoid this common trap and hold your investment for many years, resulting in a strong return.
If you’re thinking short-term investment, then property isn’t the place for you. Why? Well, the costs associated with purchasing property are high – stamp duty, legal and loan costs – so you need to hold onto a property for at least 5-years to recoup these costs. Though, most property investment gurus suggest having a 10-year strategy to benefit from a complete property cycle.
Smart property investors are continually looking to improve their investment strategy and overall knowledge. Many will complete intensive property investment courses, read countless books and articles, and aim to become financially literate. You should also strive to follow a similar path, as no investor knows everything.
Understand Cash Flow
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 and water rates, emergency services, and that you’re not just covering the mortgage.
How do I 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 have a positive amount, then this is your annual income.
- Should you have a negative amount, then this is the amount you’ll need to pay.
Move Beyond Hidden Agendas
Your friends, family, neighbours, 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 – take information onboard and look at tweaking your strategy to improve it, but don’t change it completely. Remember consistency is the key to success, and it reduces your risk long-term.
Know the Market
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.
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Buying an investment property 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 for the area.
Where 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.
Look at Lots of Property
Jump in your car and visit loads of open inspections. Narrow down what type of property represents the best value for you.
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.
Are you looking to purchase the right investment property for you? Then contact eChoice, we can help you to achieve your property investment goals faster with a qualified mortgage broker. Our brokers have access to 100’s of products, so we’ll find you a competitive mortgage.