Things to know before buying an investment property

Among the 2.2 million property investors in Australia, more than 1.5 million have just one investment property, suggesting there may be hindrances preventing them from investing further.

If you are new to property investing, you may be wary of the financial risk involved in the process or have witnessed unsuccessful attempts that are keeping you from making this leap. However, buying an investment property, while make or break, can be a rewarding and profitable undertaking, as long as you do not rush the process and consider some important steps before committing.

Here are my four tips to ensure a successful property investment purchase.

Determine how much you can borrow. Once you have a budget in place for how much you want to spend on your investment property, you will need to ascertain how much you can borrow. If you don’t determine this prior to your property search, you can end up spending crucial time and energy considering properties outside your budget. Seek out multiple lenders to find the most suitable loans they offer. Loans with a low interest rate and no hidden costs can prevent financial issues later on. You may even consider using a mortgage broker to assist you, as many of them have access to loans that you can’t source on your own and can provide helpful advice. Examine any offers you receive thoroughly before committing and, if an offer sounds too good to be true, speak to a professional to determine whether you can afford to service the loan.

Conduct a real estate investment property analysis. This is a two-part process and a crucial step before committing to an investment property. Firstly, you will need to determine how much money it will cost to fix and flip the property. This will also help you project how much profit you will generate. Once you establish whether it is a worthwhile financial investment, it is important to analyse the property’s location and physical aspects. Visit the property and surrounding neighbourhood on multiple occasions. Establish where local schools and amenities are and calculate your travel time from the property, accounting for the traffic conditions during different times of the day. If you can, visit the property under different weather conditions. For example, a visit during the rain could reveal a poor drainage system or leaks. Taking the time to conduct research early on can result in a more profitable investment.

Do not use your savings to maintain the property. Funds you have set aside for other purchases and investments, such as an emergency fund or your children’s future, should be kept separate from the money spent buying and maintaining an investment property, otherwise you risk eliminating your safety net. Instead, establish a budget whereby you lay out how much money you need to put towards your investment property deposit, along with the property’s holding costs. If you are looking to sell the property for capital gain, you will also need to account for these costs in your budget. This budget should be established well in advance of investing in a property and will ensure every dollar is accounted for and solely used for that property. If you take on a tenant, it is also important to ensure you earn enough money from them to generate positive cash flow.

Check the median property prices in locations you’re considering. A lot of opportunities will come your way when buying an investment property, but unfortunately not all of them will work out, particularly if you are undertaking a fix-and-flip strategy. To avoid this, find out the median property prices in locations you are considering investing in. This involves looking into different property types and comparing every opportunity against them. Properties that are on par or above the median price are unlikely to generate a profit and are not worthwhile if your goal is to fix and flip the property. Properties with prices below the median offer greater potential for value-adds and ensure you spend less upfront, which will help you avoid cash flow issues down the track.

Taking the time to follow a step-by-step process before committing to a property will help you on your journey towards building a successful investment portfolio and turning over a significant profit.

About Dominique Grubisa
DG Institute CEO and founder Dominique Grubisa has 25 years’ experience as a practising lawyer, debt management specialist and wealth management educator. She founded DG Institute in 2009, and is an experienced property investor, developer and entrepreneur. Dominque is a two-time winner of the ‘Female Entrepreneur of the Year in Asia, Australia or New Zealand’ Stevie Award in 2018 and 2019 and was a ‘Businesswoman of the Year’ finalist in the MyBusiness 2019 Awards. For more information about DG Institute, visit www.dginstitute.com.au.

Are you considering buying an investment property? Or do you already have one? Can you share any tips for our members? Or what else would you like to know before purchasing a property?

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

Written by Dominique Grubisa

RELATED LINKS

Best long-term investment

A significant proportion of older Aussies would invest in property with their super.

The three biggest investment mistakes

Graham Hand managing editor at First Links newsletter tells YourLifeChoices members about the

Secret to investment success

If there was ever such a thing as the key to investment success, this may be it, says money expert.



SPONSORED LINKS

LOADING MORE ARTICLE...