Property in Australia has proven itself to be one of the most effective ways to build wealth over many generations. However, not everyone is ready to take the plunge and start investing in real estate.
There are a number of factors that should be considered before getting started with your property investment journey.
You’ve set financial goals
Setting serious financial goals is a great indication that you are ready to purchase a property. Many people do not set financial goals for themselves and approach retirement only to realise that their super and savings are not going to be enough to support their retirement.
If you have reached the stage where you are serious about creating a wealth plan, or stuck in a job you don’t want to be in forever, then you are likely in the right frame of mind to seriously consider investing in property.
Manage money and budget
If you’re going to start investing in property, it’s critical that you can manage money appropriately. When you start accumulating properties, you’ll have bills that will need to be paid, mortgage repayments as well as managing the cash flow from the rental property itself.
Prior to that, you’ll need to make sure you’re putting enough money aside and budgeting effectively so that you can get yourself into a position where you have spare cash, and the capacity to get you started. It all begins with drafting a budget and learning how to live within your means so you can achieve more wealth in the long term.
If you’re saving and budgeting and not happy with bank interest, then you might be ready to look at property instead. Whilst property has more costs involved, the returns are much higher than the low interest rates often associated with savings accounts.
Cash plus borrowing
One of the biggest issues those entering the market is getting the money together for a deposit. Typically, you will need a 20 per cent deposit to secure a loan. In many areas of the country where house prices have risen sharply in the past decade, this can be a significant sum of money.
Even if you don’t have enough money together to form a 20 per cent deposit, there are other options that can help you get on the property ladder. You can look at using first home buyer schemes, such as the FHLDS, or even a guarantor loan to help buy a property to live in that, you may decide to rent out in the future. Alternatively, if you simply want to purchase an investment, you can use Lenders Mortgage Insurance (LMI) in order to put down a smaller deposit. If you are unsure whether to begin your career portfolio with a home to live in, or an investment property, check out this blog which discusses the benefits and considerations of each property type.
The other consideration is your ability to borrow. In order to borrow, you need to be able to prove that you can service the debt on a loan through your job or other income sources. When buying an investment property, the rental income counts towards your borrowing capacity so this can really help get you started.
If you’re in a position where you have a deposit together and you have the borrowing capacity, it might be time to look at purchasing a property.
You are targeting viable markets
The majority of Australian's live in Sydney and Melbourne, and as a result, house prices have risen dramatically in those two cities over the years.
If you’re new to investing and trying to work out how you can afford to buy into these markets you could be running into some issues.
If you’re serious about investing it’s important to understand that there are many different markets all around the country. Many of which have outperformed both Sydney and Melbourne and at far lower price points. These locations can also have higher rental yields which is a huge benefit to investors.
Just because one market is a bit too expensive, doesn’t mean you need to sit on your hands and put off your investment goals There are dozens of other locations right around the country that are often better opportunities and more affordable for those who are ready to invest right now.
Know what to expect and have a plan
Property is typically a long-term investment, and when you purchase a property you need to treat it as such.
While you can identify areas that are ripe for growth, it’s important to plan how you are going to build your portfolio over time. That might include looking at other options such as carrying out renovations or purchasing a subdividable property to help manufacture equity.
If you’ve already worked out the type of strategy you want to pursue and are looking at ways to buy multiple properties, then it’s clearly time for you to get started.