You’ve got your pre-approval, now the fear really sets in…or does it?
Don’t be scared. Make informed, calculated decisions and be proud of your progress. Seek support for the questions you need answered, find yourself a mentor, a professional or a supportive, experienced friend, who has had success with property. There are so many different ways to make money with property.
The specific details of the property you should buy will vary hugely, depending on many, varying factors. You can renovate structurally or cosmetically and sell, renovate and rent, rent and hold or any combination of these. You can buy a strata unit or a house on acreage. There are properties in mining areas (be careful) or the inner city. You can spend two hundred thousand, or two million dollars.
As a first time investor, here are some general tips I would recommend you consider when purchasing your first investment property.
What you are looking for is a property that earns you money. That means it is positively geared, that the repayments and expenses are less than the rent. (Yes, you can also negative gear, but personally, I can’t see any benefit in losing money!) And, you obviously want it to increase in value, over time. Simple really!
The absolute most important thing you can be aware of at this point is to remove your own emotions from the property search. That is rule number one of property investing. It doesn’t matter if you don’t like the shade of cream on the walls or if the kitchen bench isn’t the right height for you. All that matters are the numbers. How much of the mortgage will the tenant pay, how much will the tax man pay and therefore how much will you pay? Think of a property purchase as a business transaction devoid of emotion and you will already be on your way to success!
Don’t over-commit financially. It’s all well and good to spend a lot of money on a property that earns you big, positive cash flow dollars, but if the market drops or something changes in the area and you can no longer achieve the sky high rent you are relying on, then don’t buy it! Such scenarios are typical of mining towns which perhaps don’t have a diverse industry base and markets change quickly. You could be left with no tenant and nobody wanting to buy your property either.
Instead, I would suggest looking at larger regional areas where you can often purchase a house for under $400,000. Look for areas with good population and housing price growth, where industry is varied and infrastructure is growing. Obviously rental property has to be in demand in the area. Look at the vacancy rates for the suburb. I recommend finding somewhere where vacancies are under 2%. This means that of all the properties rented, less than 2% of them are empty at any point in time. Many areas are currently running at below 1%, which is a great indicator of a reliable area to invest. Obviously, supply and demand plays a big role in determining the asking rents, so low supply, high demand is an ideal scenario for the landlord. Be sure to check long term trends too, not just the current month. An upward trend could indicate many things, so make sure you research properly to avoid unexpected vacancies.
Look at the demographics of the area. There’s no point buying a 6 bedroom house if the majority of the population in that area are single retirees. Also be conscious of your ability to keep up the maintenance. A family of four kids will usually create more wear and tear than a professional couple. (Note – general wear and tear is to be expected and the tenant cannot be held liable for reasonable wear and tear).
Another factor which is not always considered are the social issues affecting the area. Now, this is where it can get exciting. If you find an area where perhaps there are many social problems, then you can safely assume that property prices will be lower than down the road where there are less problems. The secret here is to be able to forecast the areas which you believe will recover from their social issues and therefore where property values will rise in the future. As long as you are confident you will be able to reasonably rent the property in the meantime, this is a strategy used by many successful property investors, for creating long term wealth. If you live nearby and you have the time, energy and the money to renovate, then buy the worst house in the best street. You’ve heard it before, but it hasn’t changed!
Renovating can add you instant value, if done correctly. Don’t renovate to your own personal taste though. Keep it simple. Neutral colours, hard wearing surfaces and low maintenance materials and gardens. Don’t overcapitalise, but stick to a realistic, pre-determined budget and time frame. Remember, time in this instance is money. The sooner you can get a tenant in, the sooner you can start making money.
There are many intricacies of property investing for each individual to consider. Once you are comfortable that you have the ability to choose a property wisely, then go for it. Be confident in your decision making process and proud of yourself for taking the leap into the world of property investing. You might not make the prefect decision, but nor should you strive for perfection. Perfection is the enemy of getting things done. It is the friend of procrastination and of not moving forward. If you put it off and put it off and never actually commit to buying property, then you will look back with regret at the profit you could have made during the time you were procrastinating. If your first property purchase is not what you wanted it to be, you will learn from it and use that knowledge the second time around. Don’t procrastinate for fear of making mistakes, for they are more often than not, the key to a brilliant and successful future.
Tonia has bought tens of millions of dollars worth of property for her Buyers Agent clients in the Southern Highlands of NSW and surrounds. She knows what makes a great investment and how awesome it is to live in the Highlands. She loves keeping fit and having fun with her family on their amazing travel adventures.