01 Nov Buying Your First Investment Property?
Buying Your First Investment Property? 5 Things You Need to Know Before Starting Your Search
You might already own your own home and are looking to property investment for extra financial security.
Or, perhaps you’re one of a growing number of Australians whose first property purchase is an investment.
Either way, if you’re looking to buy a rental property, it’s essential to be prepared for even before you even attend your first inspection.
With hype around the housing boom continuing unabated, there’s still a prevailing attitude that property is a surefire investment. But this isn’t always the case, and first-time investors especially can get burned through not doing enough research and following bad advice.
There’s always a chance a property that’s poorly suited for investment could underdeliver on expected returns, cause all manner of complications for its owner, or even decrease in overall value.
So, to ensure your first investment property is a truly rewarding venture that’s all about maximum benefits and minimal hassle, here’s what you need to do even before you start your property hunt.
1. Get Comfortable with Your Budget
Working out how much you can comfortably borrow means getting up close and personal with your finances before paying that first visit to a mortgage broker.
You’ll need detailed calculations on cash flow, assets, debt, ongoing expenses and more. Do you have equity from an existing property that will help? Is there enough cash stashed away should the worst-case scenario arise?
People often approach brokers only after they’ve chosen an investment property. But a good mortgage broker can be an invaluable resource for new investors. They assess your personal and financial situation to help calculate your borrowing power and provide advice on the most suitable type of loan for your needs. A broker can then grant you pre-approval, giving you clear guidance on your spending limits.
2. Set Goals Before You Invest
Investing isn’t a means to an end, but a long-term strategy for achieving wealth, with clear financial goalposts to target along the way.
Establish detailed financial goals with realistic timeframes. Only then you can start narrowing down the sort properties that are most likely to achieve these goals.
For example, your goal may be to pay off your loan by a certain date and start achieving long-term passive income. Or, you may be targeting short term capital growth and, say an 20% increase in value over three years.
Know how much money you want to make, and when you want to make it. If you have your sights set on building a property portfolio, draw up a long-term plan, seek professional guidance and stage your investments accordingly.
3. Determine the type of property that best suits your goals
Now you know exactly what you want your investment property to achieve, it’s time to work out what type of property is best suited to your goals.
Different types of residential property – off-the plan apartments, units, houses and land – can outperform each other over time in terms of rental and capital growth. A lot depends on the changing demands of an area’s demographics.
Investing in an apartment in a high-density area might mean less chance of your apartment sitting vacant, and lower overall maintenance costs, while a house might attract more stable, long term tenants and more uniform capital growth.
4. Zero in on your location
It’s a common belief that location is everything, and while you obviously need to invest where people want to live, simply betting everything on the city’s hottest suburb isn’t always a winning solution. It’s important to balance out a good location with other things that make your property desirable, rather than spending everything on a sub-par asset that’s either inappropriate for the market or riddled with issues.
Once you do find a location that suits, it’s time for some heavy-duty research.
• Know your demographic. Will you most likely be competing with/catering to families or young professionals?
• Look at area’s existing amenities and infrastructure as well as future projects (roads transport, shops, recreational facilities) that could substantial uplift the suburb’s worth
• Hunt online and speak to local real estate professionals about past and future rental returns and capital growth trends. Independent reports from a source such as RP Data can provide a wealth of stats like average rents, property values, demographics and suburb profiles
• If you’re considering investing in a region far from home, such as an interstate or rural property, your investigations will have to go much deeper. While many eager investors are attracted by flashy marketing campaigns showcasing regional developments in ‘up-and-coming’ areas – unbiased information can be hard to come by. Look into historical data on local industry, trends in population growth and plans for future development. There’s nothing more valuable than on-the-ground intel, so you might be better off sticking to locations you know, or calling on the advice of a specialist buyers’ agent or locally-based real estate professional you already have a good relationship with.
5. Stick to Your Guns
Once the word is out, expect everyone from family and friends to your local neighbourhood agent to get-rich-quick spruikers to chime in with advice.
Stick to what you know is right for you and stay focused.
Buying your first investment property is a huge undertaking and it’s easy to get overwhelmed or tempted by to-good-to-be-true offers. But by taking full responsibility of why, where and how you invest in property, you’ll be better equipped to manage the risks and reap those sweet, sweet rewards into the future.
For unbiased advice and exclusive access to dozens of off-market property sales, Bespoke Buyers Agents are dedicated buyers’ advocates who can provide expert guidance through the purchase of your first investment property. Contact us today to find out more.