Becoming a Property Investor
If you’re contemplating becoming involved in Property Investment and you’re feeling overwhelmed, don’t let this stop you, because it’s quite normal when beginning something new.
Yes, your patience and management skills will be challenged while you’re learning the process of property investment, but that’s to be expected when beginning any new project. Research and education – having a great support team, and practice, will all help make this process easier and likely more successful for you.
If you’re like most people starting out in property investment you’ve probably been reading magazines and real estate reports to help prepare you for this new and exciting endeavour. Well, we’re here to help you to, and we’ll get you on the road to successful property investing.
Below we’ve outlined practical information that will basically help you start a property portfolio –
Know Exactly What You Want to Achieve
Be clear on the reason why you want to purchase an investment property.
- Are you planning on purchasing just one property, or are you planning to create a portfolio of multiple properties?
- Are you interested in a short-term get-rich-quick investment or are you looking for long-term capital growth with income to create more wealth?
When you’re very clear about your end goal, it will reduce any confusion and distraction from the advice and opinions of other well-meaning people. Of course it will also save you a lot of time inspecting properties that don’t match your goals.
Get Your Personal Finances Checked
Many people automatically assume that they can’t afford to invest.
Make a list of your basic budget: detail your expenses, and from this you can determine what spare funds you have available. Here are a few key questions to consider:
- How much money will you be able to contribute on a regular basis towards the purchase of property?
- Will this finance be available weekly, monthly, and so on?
- Do you have cash or savings available for the deposit and relevant fees, or perhaps you have equity in an existing property that can be used for this new purchase?
Knowing the precise details of your finances allows you to clearly consider the amount of money you have available to invest.
Have a Loan Assessment done
A key step in the process of property investing is to successfully get a loan. Once you know your borrowing capacity from a lender, and your personal budget, you then have clarity about the property price range that will suit your current situation.
Loan assessments can be processed through a mortgage broker or directly through the lender. Ensure that the mortgage broker you choose is very familiar with property investing and its tax implications – we can help you with that if you choose. Working closely with a good mortgage broker can be extremely helpful – especially prior to applying for finance because a broker will help you to clarify your purchasing power.
4 Fundamental Tips
- Determine if you qualify for a loan, and how much you can borrow;
- Have your credit rating checked;
- Try to tidy up your existing debts, including your home mortgage;
- Try to reduce your credit card limit/s.
Be Clear about Your Goals
Once you have a good grasp of your loan qualification and an idea of your purchase price range:- look down the track in 5 to 10 years – what does success like to you?
It’s really important at this point in time to set a commitment as to when you intend starting. If you’re like most property investors, then financial security is what you’re aiming for. Being very clear on your goals will give you the incentive and confidence you need in order to get started.
Understand Your Emotions and Attitude Towards Risk
In creating a great purchasing strategy you must have a clear understanding of your own emotions and attitude towards risk. Being aware of and understanding your personal tolerance for risk can help you decide what you’re prepared to take on; over both the short and long-term. You’ll obviously make better choices if you conduct thorough research prior to making any commitments.
Property investing research is done by confirming the pricing of property in a certain area, the projected rental income of that property, the demand for tenants, and potential future resale values. You must also review your risk insurances to ensure you have sufficient cover. Always stick to your budget and price range, and be mindful of opinions and other distractions.
Good Starting Points for Doing Your Research and Due Diligence
- Conduct online searches for properties in your price range;
- Look specifically for areas known for good rental income and tenant demand;
- Do the areas have potential future growth and/or good historical growth; and
- Complete a cash flow budget on each property of interest, both before and after tax.
Know All Your Fees and Charges
There are various fees and charges involved in purchasing property; and it’s important to remember that there are ongoing costs as well. These related costs should be budgeted for in addition to the purchase price plus any deposit required by your lender.
Purchase costs might include Government Stamp Duty, Transfer Registration, Solicitor or Conveyance fees, searches, Strata Fees, adjustment to Council rates, and so on.
Ongoing charges might include items such as Insurances, Property Management fees, maintenance and/or repairs, land tax, council rates, sewerage and water rates, and so on. Find out the costs and income differences between buying an older established property and a new property, including house and land packages.
Know Your Purchase Strategy
The correct purchase strategy for you will be in line with, and supportive of, your goals to a point where it’s producing the income or growth you’re aiming for. Your purchase strategy should serve as a structure to assist with managing your resources (time, capital, cash) and of course, risk. Overall, it’s your strategic approach to property investment that should provide the best chance for you to achieve the positive results you’re working towards, whilst (hopefully) enjoying the experience!
You will make better investment choices when you are able to make informed decisions.
Obviously you would want to avoid or at least be aware of – what property spruikers, seminars and get-rich-quick ideas will do for you. We know that there are tried and tested methods to research when it comes to buying property, but no-one can provide a guarantee that your property will perform well in the market. So by having the right knowledge and attitude towards short and long term property investment, you can confidently trust your ability to be flexible and agile in the management of your investment.
Always remember that property investing is strictly a business decision. You are not purchasing a home for yourself to live in.
- Know your goals: what are you trying to achieve?
- Determine a completion date for your goals
- Identify the milestones that must be accomplished in order to reach your goals
- Seek professional help whenever necessary
- Don’t take shortcuts, guess, or compare yourself and your progress to others.
Don’t Ever Give Up!
Visualise your situation 10 years from now! If you start on your property investment journey now and purchase the properties that are right for you and your budget, you could be sitting back financially secure and feeling extremely proud of yourself. And imagine how you’ll feel knowing that properties you purchased may have more than doubled their values while everyone else, including your peers, wished that they had the courage to do what you did just a short 10 years ago. Take that first step, and go for your dreams!