10 Tips When Buying An Investment Property - Pearl Financial

10 Tips When Buying An Investment Property

By Shane | Investing

Dec 29

When you’re a beginner in the property space, it can be completely overwhelming. There are so many different strategies that you need to look at. So many different ways to invest. So many different areas that you can invest in and even researching an area and trying to work if it’s going to be a good investment. It’s just so difficult to know exactly where to get started and how to get down the road of property investing. Here are 10 tips when buying an investment property particularly if you are a beginner.

These tips will help you down in the property investing journey and give you some sort of framework that you can work with.

 

Tip #1: Know how people make money through investment property.

Rather than thinking of wanting to be rich and make money in property, it is a good idea to actually sit down and learn how people make money in property. Generally, no matter what strategy people are using, there are three different ways they make money.

They either make it through growth in their assets, which is called a capital gain. Another way is that they make it through income, which comes from the rental income being more than the expenses. This is called positive cash flow. Lastly, it may also come from tax benefits, including depreciation, interest and other expenses from holding your investment property. It can help offset the tax that you have to pay in your employment or other income you derive for yourself.

Knowing how people actually make money is a good overarching concept to have when you go to look at which strategy is going to work best for you.

 

Tip #2: Before you actually go out and start looking at investing in property, actually sit down either by yourself or with your spouse (if you are doing property investing together) and set some financial goals.

Understand what you want your life to be like and where you want to go. It’s a great idea to set a timeframe of five, ten, twenty years or whatever suits you. This will help you choose the most appropriate investment strategy for you. If you are struggling to articulate your goals, consider sitting down with a financial adviser.

 

Tip #3: Go ahead and research various investment strategies.

If you’re a beginner in the property space, it is going to be pretty difficult for you to do this because you don’t know what investment strategies are out there.  Read some books and research investment strategies but read them knowing that you are not going to decide yet on that investment strategy.

Books can be very encouraging and convincing as well so it’ll be good to just read, collect and learn about a bunch of different strategies first before making a decision. You should also think about your financial goals. Consider what you want to achieve and where you currently are and choose a strategy that suits you before you even go and look at properties. Make sure that your strategy aligns with your goals.

 

Tip #4: Be aware of salesmen (& saleswomen)

If you are looking to do property investment in Australia and you are a beginner, chances are you’re going to stumble upon some companies that can offer you investment advice. You need to be careful of some of those companies because of the way that they derive money.

Some of them make money through commissions on the properties they sell. So if someone is talking to you and wanting to be an advisor for you but you need to purchase property through them, they may actually be going to make some pretty hefty commissions on top of that which is coming out of your pocket.

What that basically mean is that beginners often get lured into buying newly built properties that are overpriced for the area and they get left without any capital growth and actually have to wait for years for the market to catch up with them. So be aware of salesmen, and again, this comes back to knowing the different strategies.

 

Tip #5: Decide on a strategy.

Before you go out and start looking at properties, read about strategies and decide which strategy is best for you, according to your goals. If you keep changing your mind, you are probably never going to make any progress. But if you choose one strategy and find a way to make it profitable, then you can apply it with future properties once you become proficient at that strategy.

 

Tip #6:  Go and see a mortgage broker.

The reason why you should go and see a mortgage broker before you even start looking at a property is that a mortgage broker will give you an idea of how much you can actually borrow and what kind of deposit you need to save in order to buy a property. If you don’t have a mortgage broker, feel free to get in contact with us. 

 

Tip #7:  Do some recon work or some suburb analysis work.

Learn how to research an area and look at a few different areas and research them. Doing your own research, understanding the suburb dynamics and how suburbs grow can help you choose a suburb that is primed for growth and increase your chances of getting a great return on investment. If you would like a complimentary suburb research analysis report, feel free to contact us and tell us which suburb you would like insights into.

 

Tip #8:  Play make-believe (or the more boring way of saying that is to do cash flow analysis)

In this stage, you are doing research into properties. You are doing the analysis that you would do if you were to buy a property but you are not actually looking to buy it.

What you want to do is pretend you are going to buy it and therefore do all the research that you would do on it. Do a cash flow analysis on the property, do that recon work into the suburbs, and look for added value opportunities to work out if the property is actually going to deliver a return of investment or not.

 

Tip #9: When you have done some research and you are feeling comfortable in the market, get pre-approval from your mortgage broker before you go and make an offer on a property.

You’ll have an approval based on your borrowing capacity. This means that when you find a property and make an offer, the time period from making your offer to getting your loan fully approved is so much smaller. It’s really a great thing to do.

 

Tip #10: Start making offers.

Explore the market and see what it’s like. Hone your negotiation skills and become more aware of the market.

 

So these are some tips for you if you’re looking at property investment in Australia and you’re a beginner investor. There’s still a lot to learn but hope that these tips make buying an investment property less intimidating.

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About the Author

Shane specialises in helping Gen Y professionals and business owners make an impact by accumulating more assets, generating more income, and having more time to enjoy life. He has a Master of Applied Finance, an MBA, and a Master of Financial Planning. He is also a terrible golfer.

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