Property is still considered one of the most secure forms of investment, as Mark Twain said:
“Buy land, they’re not making it anymore.”
While property investing is an essential part of creating lasting wealth for retirement or otherwise, there are some vital things you need to know before you get started.
1. Understand your goals
Why are you investing in property? Is it to build your net worth through assets, create current income, or to reduce your tax liability?
In any event, having an understanding of your reasons for investing are essential to creating the right path to success for your needs.
Your needs should always guide your decisions in which properties, suburbs, and markets you invest in.
2. Know your budget
Before making any decisions, it’s important to understand your buying and borrowing power before searching for potential investments.
Ensure you get pre-approved for any financing so you know exactly how much you can afford to invest.
Notice the use of the word “invest” — you aren’t simply spending money, but spending money with the goal of receiving a return.
3. Factor in ongoing costs
It’s all well and good to be able to afford your weekly repayments, but what about additional ongoing costs?
Don’t make the mistake of forgetting to estimate and budget for rates, insurance, and maintenance and getting caught out after purchasing your investment.
Remember, there is also great benefit in proactively minimising expensive fixes, such as fixing cracks and replacing old taps or pipes.
4. Buy in a growth market
When investing, remember the asset you are purchasing first serves your hypothetical tenants, not yourself.
This means thinking about what an attractive rental would look include to them: is it close to nearby schools, public transportation, and shopping centres? Is it in any area that is experiencing development and new investment?
5. Look for quality and liveability, not luxury
Your first investment doesn’t need to put the Palazzo Versace to shame.
Search for tidy, well-built or recently-built properties without known issues that are highly liveable and well-located.
6. Get ahead by rolling your sleeves up
Are you looking at a property that potentially requires renovation to increase its value?
Before paying for tradesmen to perform costly renovations, evaluate whether or not doing the renovations yourself could reduce costs and increase your return at the same time.
7. Make objective decisions
Buying a home is a very personal and emotional journey.
However, when investing, being objective and practical is the best way to think if you’d like to achieve the greatest possible return on investment.
Don’t get sucked into homes on sloped blocks with gorgeous views that are an excavation nightmare or stylish interiors that can be easily damaged.
8. How much room do you have to move?
If you’re still paying off your own home, this is a very important evaluation.
While it’s certainly not impossible, or even a bad idea, to purchase an investment property while paying off your own home, ensure you have your debt under control.
A reasonable amount of equity in your own home is recommended, and do your best to find a property you can comfortably afford – especially if it’s your first investment.
9. Consider negative gearing carefully
If the rental income of your property doesn’t cover your repayments, rates, or body corporate fees, this will be considered negatively geared (that is, an investment operating at a loss).
Negative gearing does come with tax advantages, but be careful not to outweigh those benefits with the importance of maintaining cash flow and reducing financial stress.
10. Always get an official building inspection
Before purchasing a property, one of the best ways to stop yourself from purchasing a money pit is to get a building inspection done to certify the condition of the property.
This will make sure you’re aware of any current or potential problems that may arise in the future and save you a possible fortune.
Wondering if now is a good time to invest?
Download our latest market report here.