Things to know before buying an investment property

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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?

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Written by Dominique Grubisa

3 Comments

Total Comments: 3
  1. 1
    0

    Be aware that investing in property is far from “buy, rent out and forget,” it’s hard work. Managing the managing agent is a job in itself as they generally respond to the squeaky wheel which is invariably the tenant even though you are paying his/her fees.
    Remember that a large proportion off tenants will never be able to buy property and will often see you the landlord as rich and exploitative and will want their pound of flesh.
    Minimise the amount of equipment such as washing machines, dishwashers microwaves etc which can go wrong and need repair or you will be constantly paying for replacements. Some tenants think that they can do what they like to your property and neither they nor the agents seem to know what they have agreed to in the lease.
    I and several friends and acquaintances would now prefer to leave property standing empty rather than go through the dramas of renting out. If you want a peaceful retirement think seriously iabout f this is for you.

  2. 0
    0

    I have had investment properties for many years, and firmly believe that the main key to successful investing is having a good agent looking after the proprty for you, particularly if you live some distance away from the property, as travel expenses are largely unclaimable these days. Let them assess the new tenants when needed, let them keep up-to-date with current legislation, let them do the work. Yes, you will need to pay them to do this, but any charges are tax-deductible, so not as expensive as they may seem at first sight. Property is an excellent long-term investment, but do your homework first, and get a good agent to work for you.

  3. 0
    0

    Remember the choice.
    Do I get the Aged Pension
    or do I own property (need more than one investment property to be on top).


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