The 7 essentials steps to follow to start investing in property
Australia has long been one of the most property obsessed countries in the world. We love to buy property - to live in, for investment, for holidaying and we love talking about property - prices rising, interest rates going up, interest rates going down, first home buyers, renovation success, renovation nightmares; we simply can't get enough of it. And with tonnes of data that supports our obsession to be alive and well, it's no wonder that investing in property can pave the way for long-term wealth.
But let’s be honest, it's probably the largest purchase you're likely to make in your life and so venturing into this realm is not to be taken lightly and can be challenging - especially when taking the leap to purchase your first investment property. It’s a different proposition to buying a ‘forever home’; and one that should be much less emotional and a lot more strategic.
For anyone with decades of experience in this field, they’ll likely tell you careful and meticulous planning, with extensive research at all stages is the key to succeeding. But what if you don't know what to plan and research?
Setting yourself on a path to achieving your investment goals
As is the case with most things these days, once anyone is ready to start researching something we’ll jump onto our favoured search engine and get busy diving into what the Internet has to offer on the topic. However, if one types in ‘how to buy your first investment property’ you’ll get a surprising amount of information from banks offering you their best rates! And while the financial component of investing is obviously highly critical, there are some very important tasks that you should complete before picking up the phone to your broker or bank to assess your borrowing capacity.
The very first step will force you to create a clear agenda and not treat this as any other big transaction - youre not buying a depreciating asset like a car; youre making this leap as part of a wealth growing plan. Having a tough conversation with yourself and/or your partner about why you're doing this will ensure you are in the right mindset to make good investment choices.
Gather the info and set your targets - it's time for researching
Step 1: Define Your Investment Goals: To embark on a successful property investment journey, it's crucial to first establish your objectives. Determine whether you aim for passive income, capital growth, tax minimization, or a combination of these factors. This clarity will shape your investment strategy.
Step 2: Conduct Market Research: Thoroughly researching the property market is vital for gaining insights into current trends, average prices, and potential hotspots. Identify areas experiencing growth, popular developments, future infrastructure planned, good schools and high demand for job opportunities.
An investment property advisor is a great resource to support you with getting the research phase right. Not only do they have access to data and resources that the average person tends not to have; they should have their finger on the pulse for the market and might even be able to look into options that are not yet available in mainstream channels.
Putting the right amount of time and effort into research can also ensure you don't fall trap to what is referred to as ‘just buying in your own backyard’. Usually brought on by indecision, research fatigue or general confusion - people can err towards buying in their local neighbourhood. At the time it can feel like a more convenient and easier decision, supported by the familiarity one feels to the area; but isn't guarantee to match what good research would advise you to consider buying.
Getting on top of your financials long before you’re ready to buy
Circling back to the goals you set earlier, will assist in answering some of the more basic questions around how much you should spend on securing your investment property. While there is hopefully much less emotion in the buying process, it is still crucial that you’re crystal clear on setting a limit for how much you can afford - relative to the return on investment you're seeking.
And while calculations on the long term ROI are important, it's also essential to remember the spike in costs at the front end of this process. Upfront costs can quickly add up - for example a property valued at $400,000, could have upfront costs of up to 11% of the property's value. Legal fees, lenders mortgage insurance (LMI), loan establishment fees, and stamp duty are all costs coming your way in the early stages.
Break out the calculator - it's time for the financial steps
Step 3: Set Your Budget: Understanding your financial position is paramount. Assess your cash flow and determine how much you can afford to invest. Take into account upfront costs, ongoing expenses, and potential return on investment. Crunch the numbers before diving into property investing.
Step 4: Financing Your Investment: Consider the various financing options available to you, such as cash, mortgages, or alternative sources. Seeking advice from a licensed finance broker will ensure you make informed decisions about financing your investment.
Not only is it impossible for you to complete these steps without the support of a professional, it’s paramount that you engage qualified, certified people to put all the steps in motion when and how you need. These days there are various providers with different types of loans and different types of application processes. In working through how you’ll finance your investment, don't forget to give yourself enough time to have everything set before you jump in to make an offer. Having frank conversations about expectations on pre-approval, settlement period you’d like to offer (which range from 30 to 90+), and engaging a conveyancer to complete the transaction in this time frame will need to take place.
Let’s get the deal done - it’s time to purchase your property
While it's true that the Australian obsession with real estate has produced phenomenal success and growth over the years, the era of simply buying any investment property for an almost guaranteed positive return is gone. A lot of general comparison data shows that wealth creation from property vs super, remains stronger but you still need to make wise choices when it comes to choosing the property. The research you will have done by this point will undoubtedly guide you on location but the specifics of each property is critically important. By the time you're making an official offer you should know the property like the back of your hand and have a clear understanding of its history and its future.
Similar to a buyers advocate, an investment property advisor can be your best resource when it comes to hunting down a great opportunity. Of course this service comes with a cost (which will vary) but avoiding purchasing a lemon and giving you peace of mind that you're choosing the right property means you can progress sooner and capitalise on the 8th wonder of the world - compound interest.
Break out the calculator - it's time for the financial steps
Step 5: Choose the Right Property: With a clear understanding of your investment goals and borrowing capacity, it's time to search for properties that align with your criteria. Factors such as location, property type, size, and condition should be carefully considered.
Step 6: Conduct Due Diligence: Before finalizing a property purchase, conducting due diligence is crucial. Engage professionals, such as building inspectors and legal conveyancers, to examine the property's history, title, and any zoning or planning restrictions. Thorough research ensures a sound investment decision.
Step 7: Effective Investment Management: After purchasing the property, efficient management is essential. This involves tasks like tenant selection, property maintenance, and adhering to legal and financial obligations. Employing a competent property manager who provides regular feedback and inspection reports will streamline the management process.
While the reward and relief from completing the purchase and securing your first investment property will undoubtedly feel fantastic; setting up the ongoing management of the property is just as important. Employing the services of a great property manager will be helpful in ensuring that you can align timings of tenant selection and lease commencement with settlement to minimise any gap between paying your loan and having that rental income coming into your account. And of course making sure your accountant is up to date on your recent investment come tax time will ensure they’re across the strategy and ready to help you maximise the tax benefits of being an investment property owner.
Property Investing is a long game
Just like the story of the tortoise and the hare, you can move slowly but without stopping and you too can win the ‘property investing’ race. However, the true moral is that you can be successful by doing things steadily compared to acting quickly and carelessly and this couldn’t be more applicable than working through the steps of starting in property investment.
It is a long-term commitment and demands patience, to execute on a well-thought-out strategy. Working with a certified Property Investment Advisor will provide an extra level of support, expertise and guidance - specifically when it comes to step 5 in choosing your property; but equally across the entire journey from the point you decide you're ready to start.
Your Property Investing works with first time investors, rentvestors, SMSF investors and experienced investors to find the right property for them, in the right place at the right price. Utilising our support, relationships and expertise can enhance your chances of success and create a profitable property investment portfolio. Begin the journey today and start building your wealth for a financially stress free future.