7 Tips When Buying Your First Investment Property - Pearl Financial

7 Tips When Buying Your First Investment Property

By Shane | Investing

May 21

7 tips when buying your first investment property

There is a difference between buying a home to live in and buying an investment property. It’s mostly an emotional decision when deciding which property you will call ‘home sweet home‘, where an investment decision should be made through a rational decision-making process… it should be all about the numbers.

Keen to learn more? Then strap yourself in and read on…

1. What is your objective?

Understanding your investment objectives and the desired outcome that you are looking for is key to helping you decide which property is right for you. Buying the property is NOT the end goal – you should be concerned with what the property will allow you to achieve, e.g. passive income, capital growth, a diversified portfolio etc.

Once you’ve decided what your desired outcome (or end goal) is, you should reverse engineer your strategy to get there. Also remember – your strategy is never “set and forget“… you will need to review it regularly as the market, and your personal circumstances, change over time. We recommend you get professional help with this… if you don’t know a professional, contact us and we will put you in contact with one of our trusted professional partners.

2. What type of property should you purchase?

You need to gain an understanding of which type of property is going to work best for your strategy from point 1. Not enough spend enough time considering this point, or worse, take advice from someone who has absolutely no clue. Remember, less than 7% of Australians actually own an investment… that means that more than 9 out of 10 people probably haven’t a clue about what type of property is going to be right for your personal circumstances and investment strategy.

3. New property? Or old property?

We’ve all heard the differing opinions… “you should buy a renovator’s delight” or “buy the worst house on the best street”… but there are pros and cons of each type of property. You should consider how much time and money you have to invest in maximising the return that you will get from the property as well as your overall investment strategy.

Let the numbers drive your decision making… never immediately write-off a property without first considering the likely financial outcome.

4. Location, location, location

Location is a key driver of performance. There is so much to consider when thinking about location so be sure to do your research into what would make the property desirable to potential tenants.

5. What can you REALLY afford?

One of our core principles for our clients is for them to ‘know your numbers‘. This basically means understanding how much it costs to be you… how much it takes to fund the lifestyle that you want for you and your family. We are a big believer in making this process as simple as possible so our clients (and me personally) use our wealth portal to give your complete transparency on your income and expenses. Click here to check it out.

Another key consideration is to get pre-approval and make sure you factor in all the additional expenses of buying a property (e.g. stamp duty, conveyancer costs etc).

6. How to own the property

Most people understand that you can own property in your own name, but there are other ownership structures you may consider. These include in trusts and in superannuation. This gets complicated so you will need to consult an accountant and possibly a financial adviser to fully understand the implications for your family both now and in the future.

7. Leave your emotions at the door

I know I said this earlier, but it’s super important so I’ll say it again – buying an investment property should never be an emotional decision. It is 100% of the time about the numbers… it’s about the ROI (return on investment)… not which property you could picture yourself living in and how you would arrange the furniture in the place.

If you are struggling to go through the process without forming an emotional connection to the property, then maybe you aren’t quite ready to invest. It’s better to give yourself some time to prepare for the investment journey, rather than allocate your precious investment capital to a sub-standard emotionally fuelled property purchase.

Remember…

… less than 7% of Australians own one investment property and even less own 2 investment properties (around 1.6%)… so it pays to get expert advice to make sure that your first investment property purchase is going to set you up for the second… and possibly third.

Follow

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.

>