Raising the initial capital to buy into real estate can be difficult for some investors, so can tempting to bypass identifying professionals whose help will be needed.
Real estate investment is much like running your own small business.
Whether you have 1 or 100 properties in your portfolio, you will need to make decisions about tenants, property management, and maintenance and keep thorough records of all transactions and dealings.
Value your own time highly
When you come to making a decision about whether or not you will hire a contractor to carry out maintenance work, if you will not use a property manager to handle your tenancy and other decisions that face real estate investors every day, first consider the impact these tasks will have on your own time.
You are a valuable commodity. Can you really afford to do the work yourself when you could hire a professional and write the costs off as a tax deduction anyway?
As a general rule, you should choose a property investing team of experts whose help you can call upon. They will include:
An accountant is often your first port of call when considering your future as a real estate investor.
Quite simply, you cannot invest in real estate without money, and unless you're an accountant yourself, there are probably some tips and tricks you would like to find out about real estate investment before you take the plunge.
The first thing an accountant can do is give you a good overview of your real estate investment potential, taking into account your current financial situation, time of life and income.
When it comes tax time you want this accountant to know all the ins and outs of minimising tax costs, depreciation and getting the best return on your investments as possible.
You can use your accountant to advise you of not only the best ownership option to adhere to, but also ways in which you can avoid investment headaches and maximise your earning potential while keeping your outlays to a minimum.
2. Lawyer or Conveyancer
During any property transaction you will require a qualified legal professional to arrange settlement of the property.
A solicitor is a generalist legal professional who may or may not specialise in property transactions.
You would tend to use a generalist solicitor to facilitate your buying and selling transactions if they have completed a conveyancing certificate and have extensive property market experience.
Conveyances are usually not legal professionals in a generalist sense. They may not have completed a law degree at university or been admitted to practice generalist law, although there are some conveyancers who are also solicitors, they just specialise in property transactions only.
A conveyancer will usually provide you with all of the expertise you need to buy and sell properties within the real estate market.
They will run all of the necessary property title checks and searches on the property and facilitate the settlement process as a middle man between the buyer and the seller.
The general rule is to form upfront relationships with a trusted solicitor, conveyancer or both when considering buying an investment property.
3. Banks vs Brokers
Real estate investment costs a considerable amount of money and for many investors raising capital and sourcing loans is the major impediment to forging ahead as a real estate investor.
Determining the right financier is all about relationships.
When it comes to starting out in property, you will most likely need to apply for a mortgage and this can be done by applying directly through a bank, or consulting the expertise of a mortgage broker.
A bank lender can be directly approached by the investors and it is as easy as making an appointment with the loans manager at your local bank branch.
There is every chance this bank will want to loan you money to buy property that they may even try to talk you into making an application for pre-approved mortgage finance on the first visit.
But tread carefully. Banks may want you to borrow with them and them only, regardless of whether their competitor down the road offers a product which is actually much more suited to your financial situation and capability.
Enter the mortgage broker
A mortgage broker will essentially shop around for the right loan for you and your individual financial situation.
A mortgage broker acts as an intermediary between the borrower and the bank or lender.
They will research the best loan product for you from a wide variety of lending institutions and help you throughout the loan application process.
Usually, you will not have to pay for the mortgage broking service, as the broker receives a fee from the bank or lender.
Benefits of using a broker
- They will assess your circumstances and research the wide variety of lenders and loans that are available so you get the best option for your needs.
- They will help and support you through the loan application process to ensure things go as smoothly as possible.
- Their experience in each lenders application process will save you time and stress.
- They can match you to the most appropriate lenders according to your personal situation. For example, if you are self-employed or want to buy an unusual property, they will know the best lenders and loan products for you.
- Their service is free for most types of home loans.
Always look for one who is accredited as entirely independent. This means they will get paid the same commission from the bank you settle on as your lender regardless.
A trusted independent mortgage broker can be the best friend of a property investor and the one expert who can truly help to get your initial capital raising off the ground by arranging your first mortgage loan.
Always check your mortgage broker’s commission takings to ensure they remain unbiased to any one institution and therefore work within your best interests.
A good relationship with your lender is paramount for real estate investors and it often becomes the case that the first financial institution who lends to you remains the best option for you as you apply for further mortgages to expand your portfolio in the future.
4. Independent valuer
A valuer is used to assess the market value of a property.
A valuer will normally elicit this information by making a comparison of the property in question with comparable properties in the same area and their recent sales values.
The first thing to look for when appointing a valuer is to ensure they have the correct accreditation.
You need a valuer who can provide reliable, accredited assessments on the value of all types of property.
When will you need a valuer?
If you are applying for finance, your bank or lender may require a valuation of your existing assets to ensure they are able to calculate the actual equity you have within your portfolio.
Banking institutions will usually use their own valuers to carry out this valuing, and they will generally be conservative when making a valuation of your existing assets to ensure they are well-covered when offering you loaned money.
You will need to appoint your own valuer when attempting to sell a property, to determine safely the right market price to place on it.
Valuers use a combination of market information, land values, development investigations and other analysis techniques to arrive at their valuation estimate.
Many agents, banks and valuers use RP Data, the same platform that our Professional or Advanced members use.
This allows property investors to conduct unlimited valuation estimation reports and conduct detailed suburb and property research.
5. Contractors such as plumbers, painters, cleaners, pest controllers
Builders and other contractors will form an integral part of your real estate team.
At the outset of your real estate investment lifetime you should work to gather a list of reliable contractors to assist you when you require emergency maintenance or planned jobs to be carried out on your investment properties.
Major renovations or alterations to a property will require the coordination of several trades people at the one time, and this type of scenario is a great opportunity to compile a list of reliable contractors for future projects.
How to choose your contractors
Often, the best way to choose builders and other property investing tradesmen is by word of mouth.
Do fellow friends, family or investors speak highly of a particular trades company or individual? If so, take the time to make contact with this person or company and gather their contact details in the event of requiring their specialized work at your property.
6. Property manager
Property managers look after the tenancy of your investment property.
A property manager is used to source the right tenant for your property via a detailed process of elimination based on the tenant’s past rental history, income details, and application documentation.
Once the right tenant has been matched to the property, the property manager then works to manage their tenancy by facilitating the collection of rent and passing it onto the owner.
Take your time and do your homework when making your selection.
You will be paying them a fee for their time and effort and you want to ensure you are getting good return on your investment. Always ask for:
- Details of their qualifications and experience
- Management systems in place to look after your property
- Services provided as part of their fee
- An overview of the fee structure
Ensure your property manager has a rental payment tracking system in place.
Ask to see some inspection records they have carried out on other investment properties to ensure they are thorough and it meets your standards.
Meet several property managers and list the pros and cons of each before deciding who will manage your investments.
Work with a team you can trust
Forge long-standing relationships with people you trust very early on in the piece and seek advice before you even start making conditional offers on properties.
Choosing the right experts will reduce your investment risk right from the start, and no doubt save you money and mistakes in the long run.