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How to Invest in Property: 6 Essential Tips

Understanding how to invest in property can be complex, and each investor will have their own unique journey to follow and goals to achieve.

This is designed to be an article aimed at first time investors who want some practical tips that can help them get started, along with some free tools, data and resources to assist along the way.

As always, please use the comments at the bottom to give us your feedback.

Why invest in property at all?

Many Australians consider getting started with property investment property because they consider it to be a source of long term and sustainable income, and approximately 1.8 million of our population of 23 million own one or more investment properties.

Those that do decide to start their property investing journey may do so for lots of different reasons.

Perhaps the most stand-out feature of real estate investment in terms of creating wealth is the ability for long term capital growth.

Purchase a property for $200,000. After 10 years, it will be worth:

  • 5% Capital Growth        $326,000
  • 10% Capital Growth      $519,000
  • 15% Capital Growth      $810,000 

Keeping in mind that as a property investor, during this period of wealth creation your property investment portfolio can be continually earning you income in the form of rental yields too, it is easy to see that real estate can be a great way to implement a wealth creation plan and give you excellent, long term outcomes.

So if you are ready to start your property investing journey, here are 6 tips you can consider to get your portfolio off to the best possible start.

1. Check your finances

Investing in property is going to take some capital investment, so you need to take stock of all your assets, your income and outgoings and work out how much you have available to invest. 

Speak to your accountant so you can get an accurate picture of your current financial situation.  If you don’t have an accountant, use one who already owns investment property and understands the journey you want to take.

You can also talk to a bank or mortgage broker and get pre-approval on how much you are able to borrow given your current situation and circumstances. This will help you set a realistic budget and get some buying rules in place.

You can also discuss whether you have any equity available in your home that you may be able to use to kick start your property investment portfolio.

2. Set some goals

When we ask our Real Estate Investar members why they invest in property and what results they are achieving, we get lots of different answers and case study examples That is one of the reasons property investment can be such a good vehicle for wealth creation - there are lots of different strategies you can use.

For example, you may intend to buy high cash flow properties and replace or supplement your current income. 

Or perhaps you have a plan for retirement which involves buying investment property with good, long term capital growth prospects.

It would be fair to say that many of the most successful property investors start out with a definitive plan in place which states the outcomes they want property investment to deliver for them.

3. Understand your attitude to risk

As with all forms of investment, property investment carries inherent risk.  The principles of working out your level of comfort with property investment risk are the same no matter what type of investment you are considering.

Your level of comfort with risk will usually depend on your current financial situation and time of life.

For example, investors close to retirement may look to limit their level of risk, and work on a strategy that gives shorter term returns. 

However, property investors forecasting out for retirement in their 30s may have a 20-year plan to meet their desired outcome.

These investors may be more open to speculative investments and therefore may consider buying property in need of renovations in order to cash in on decent capital growth - these investors don't mind the thought of a long-term project to get them towards their investment goals. 

To determine your level of comfort with investment risks consider your level of income, the needs of your dependents and current debt repayments that need to be met.

Can you afford to keep an investment property that may take 3 months to tenant? Is your income enough to secure you a mortgage loan?

If you are concerned about the level of risk in real estate investment - start simple, don't over borrow or over commit and don't panic if capital growth stalls for a couple of years.

Start safe and manage your level of risk with as much accurate research as you are able to do, combined with solid financial backing

4. Choose your property investing strategy

Having goals in place is a great start, but what is your strategy for achieving them?   

There are many different property investing strategies you can follow, which include:

Discount - Purchasing property under its market value, so you gain chunks of equity.

The discount property investment strategy involves purchasing investment property below valuation, not below the sale price. The valuation of the property is the amount that banks and lenders see as the property's value.

If the property is purchased for below its valuation price, this means you are creating immediate equity - the difference between the current market value of the property and the amount owing on the mortgage.

Positive cash flow. Purchasing property where the rent you receive more than covers the costs (expenses and repayments etc) so the cash flow can boost your income.

Positive cash flow investing is generally contrasted with negative gearing, where the income returns do not offset holding costs, and the investor uses the tax treatment of the loses to their advantage.

Proponents of the positive cash flow strategy point to the advantages of owning income-generating assets.

Some benefits of the cash flow strategy include:

  • Having access to a monthly income stream has an obvious appeal. 
  • Cash flow properties can balance your portfolio as the extra cash can be used to pay the shortfall that may be associated with holding properties with high capital growth potential.
  • Positive cash flow properties can increase your serviceability and can make you more attractive to lenders.

You can download our free set of Top 50 suburb reports, which includes the suburbs with the highest rental yields by clicking here.

Sub-division. Subdivision is the act of dividing an existing area of land into two or more segments with individual titles.

This allows for separate properties to be built on these new segments. This option works on the principle that split pieces of land with individual titles are worth more than the single lot.

Be aware the regulations and process for subdivision varies from state to state and it can be a complex and lengthy process.

Off-the-plan. Purchasing property off-the-plan means entering a contract to buy the property before or during its construction.

You won’t be able to inspect the finished property until construction is complete. Investors can put down a deposit and speculate that the market will rise before they actually need to settle on the property – meaning there is potential to obtain capital growth over the settlement period.

Renovation. The aim of the renovation strategy is to add value to an investment property by improving its condition or adding new features.  

The key is targeting properties with potential that you make improvements and add value to, for the type of buyer or tenant looking to reside in that area.

Some key considerations are:

  • Finding investment property below suburb median to create future upside.
  • Looking for poorly presented properties that are cosmetically distressed but with sound fundamentals.
  • Understand key suburb and property facts.
  • Finding out sales and on the market history, stock clearance rates, capital growth trends and valuation estimation estimates.

If you are looking for renovation properties, this pack of suburb reports includes suburbs with the highest proportion of renovation listings.

5. Property investing research

With more than 900,000 property listings for sale in Australia, finding the right one that matches your long term goals and strategy can be a massive impediment for many potential property investors.

It’s critical that you spend time finding and analysing the right property that matches your strategy and buying rules.

Real Estate Investar members use Investar Search, our unique investment search engine. Designed for property investors, you can filter search and analyse the listings from 40 plus sites nationally in one place.

 

 
 
 
 
 
 
 
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If you think you have found the right property, make sure you have conducted thorough research of the property and its location which includes:

  • How long the property has been on the market for.
  • Its on-the-market history; any changes in advertised price since it was placed on the market.
  • Its sales history i.e. how much the previous owners bought it for.
  • The median sale price and historical capital growth rates of the location.
  • How much comparable properties are selling and renting for. 
  • An estimated market value of the property.

Real Estate Investar members use My Valuer and My Research to conduct unlimited property valuation estimates and research property and suburb trends to help with their negotiation.

This quick video shows how My Valuer can quickly and easily give you an accurate market valuation estimate. 

 

 
 
 
 
 
 
 
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6. Stay focused and avoid common mistakes

Treat your property investment as a business and bear in mind it’s a long term journey you will be taking.

Keep in the front of your mind the goals that you want to achieve and the milestones you need to hit along the way.  It is also really important to learn from other property investors and the common mistakes that can spell disaster, which include:

  • Don’t assume you can do it all by yourself.  Form a property investing team of people around you that can help.

  • Don’t lose sight of the big picture. Regularly review your goals and when you have started investing, check on your portfolio’s fundamentals regularly. E.g. your equity, available depreciation, cash flow, rents, interest rates etc. to make sure you optimise your portfolio to its maximum potential.

    Real Estate Investar members can use our Portfolio Tracker tool to get real time portfolio data to help manage, track and optimise each property.

 
 
 
 
 
 
 
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  • Don’t neglect your property. You may have what it takes to manage your own investment property, but consider using a professional property manager.

  • Over-stretching your finances.  Create a realistic budget that factors in the running costs, repayments, rates, insurance etc of owning investment property and ensure you can meet them.  Factor in a scenario of what would happen if the property is vacant for 2 – 3 months and ensure you have a contingency plan that can meet this cost.
  • Falling in love with property, not the numbers.  Analyse every potential opportunity and crunch the numbers before you commit. This quick video shows how Real Estate Investar members do this.


     
     
     
     
     
     
     
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  • Limiting your property selection choice. You can buy by auction or negotiation, and there are pros and cons of both.  Many property investors choose not to go through an auction, as they may find it too stressful an experience.  If you put yourself in this category, attend some auctions to see how they work and check out this blog which can give you some tips for buying at auction.

Property investment is a complex subject, but we hope this article will help you get to grips with some of the fundamentals and can go some way to help you decide whether it is a wealth creation strategy that is right for you.  

Thanks for reading, good luck with your property investing and please give us your feedback using the comments below.


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