Investing in Residential Property and building a portfolio of properties has almost become a religion. Real Estate is one of the most popular ways of building wealth and is favored by a multitude of investors. Generous tax breaks and capital gains tax exemptions, makes residential property a popular investment vehicle.
If you are new to the property investing or just looking to acquire a property to live in, then here are 10 great tips that will help you on your journey and hopefully increase your chances of success.
1. Finding the right property at the right price
Know what you want with regards to the type of dwelling that you wish to purchase (i.e. are you looking for a unit, townhouse, freestanding house or vacant land etc.) and thoroughly researching the area where you wish to buy is paramount to success. Knowledge is power. So do the research. There are a multitude of websites that can assist when it comes to carrying out your research. They offer an abundance of information for the property buyer and are free to use, so all it costs you is your time. Always remember, the golden rule of property investing or buying real estate in general is, don’t get emotional about a property. In most instances, you will just end up paying more for than you should have.
If you are new to the whole process, then retaining the services of a Buyers Agent to assist in the acquisition process could be a good first option.
2. What is a Buyer’s Agent and why should I consider using one?
A buyer’s agent is a Licensed Real Estate Professional who works on behalf of the buyer to find properties that could be potentially suitable for purchase. Once the agent has found suitable properties based on your chosen criteria, they will then assist you through the acquisition process, be it bidding on your behalf at an Auction or negotiating a Private Treaty sale price. Most Buyers agents charge a percentage of the purchase price on settlement as payment for their services while others charge a fixed fee.
3. Find a great property manager and utilize their skill set
Having a good property manager is essential to any good investment property strategy. A good property manager will have a good understanding of local and broader market conditions and will insure that;
- you achieve maximum rent when leasing your property
- that regular inspections are carried out and any maintenance issues identified and attended to
- represent you at tribunal if a tenancy becomes problematic
- employ the right advertising strategy for your property, so that days on market are kept to a bare minimum if the property becomes vacant
- your property is leased to the best quality applicant
- applicants are thoroughly screened before considering them for a tenancy
- all payments and receipts are documented which makes tax time a breeze
A good property manager is often the difference between a hassle free tenancy and a financial disaster. Many people choose to go down the self management path, however when you do the math, a great property manager will always generate more income for your property and deliver better outcomes!
4. A well presented property rents quicker and for more dollars!
A well presented property will always generate more income and less headaches for a landlord than a poorly presented one. A good property manager who conducts regular inspections, will prevent a property from falling into disrepair and will be forthcoming with suggestions as to how to keep the property in good order. A good property management agent will conduct quarterly inspection and will always be ahead of the curve when it comes to maintenance issues. Small problems can become significantly larger and expensive problems if not addresses (e.g. a leaking pipe in a bathroom that could have been fixed when identified, if left could lead to much larger problems down the track).
5. Using equity in an existing property to buy an another investment property
This is a great strategy to utilize if you already own an investment property and have a significant amount of equity already build into the property. Leveraging of an existing property will enable you to acquire additional investments without having to go through the headaches of saving another deposit. Negative gearing and Capital Gains exemptions have made this even more appealing, as investors can write of any losses incurred against their taxable income, thus reducing their tax liabilities. This strategy has been used by a multitude of investors to build substantial property portfolios over the years.
6. Have your financing in place and know your limitations
Getting per-approval for a loan, is the best way to capitalize on opportunities and know your limitations. If you are able to save 20 percent of the purchase price of a property, then you are going to avoid mortgage insurance. Unnecessary costs should be avoided if possible, but in saying that, if you are continually trying to get to that 20 percent deposit figure and trying to buy into a market like Sydney or Melbourne where price growth over the last several years has been phenomenal, this may be actually working against you. Not that I would be advocating buying into either of these markets at the present time as they have already peaked. Borrow responsibly and always work on an average interest rate of 7 percent, which is the long term average!
7. Long term or short term? Know your investment time line!
It has been proven time and time again that properties held over the longer term, are more likely to generate capital growth than in the short term. Just like any other good or service, rents and property prices increase over time. Supply and demand and a host of other variables will ultimately determine the speed at which this occurs. Trying to pick the bottom of the market is often referred to as trying to catch a falling knife. Yikes. And trying to pick the top of the market is like summiting Everest. Carry out your Due Diligence and do the math.
Good investors aren’t lucky. They are educated! So educate yourself. There is a proliferation of websites that enable you carry out research and gain a good understanding of market conditions in which you are considering buying into. Do your research, know your investment strategy and carry out the necessary due diligence. What is due diligence?
8. Carry out thorough Due Diligence on a property before purchasing it!
When referring to due diligence, we are essentially saying, do the research and know exactly what you are purchasing. Be aware of a host of variables that may affect the property and which may impose restrictions and obligations on you the buyer in the future. Due diligence requires you, the potential buyer to carry out a multitude of tasks depending on where and what you are buying.
These include but are not limited to;
- building and pest inspections
- property tile searches
- council rates obligations
- strata contributions if you are buying into an owners corporation (e.g. townhouse or unit with common property)
- assessing potential flood and fire risks
- what zoning regulations apply to the property
- knowing the exact boundary lines of the property
- determining if easements exist on the property
- stamp duty obligations
Many of these tasks can and will be carried out by your conveyance if you proceed to the point of making an offer on a property and that offer is accepted by the vendor.
9. Buying at Auction can be risky!
Buying at an auction is a very emotionally charged and raw experience. You are often caught up in the moment, with many buyers end up paying more for a purchase than if the property was listed for Sale by Private Treaty. Unfortunately, a lot of property buyers in the Sydney and Melbourne market have no other option. The state of the market (i.e. high demand and limited supply in these two cities) has seen Auction campaigns used as the preferred marketing strategy for the majority of sellers.
If you do buy at auction, the services of a Buyer’s Agent could be quite beneficial as they don’t get emotional about the purchase and will not buy if the price exceeds what they consider to be the property's true value. Also remember, if you do buy at auction, it is imperative to have your finances in place and remember, try not to get to emotional and caught up in the moment!
10. Choose the right type of mortgage that suit your particular circumstances
The services of a good Mortgage Broker and a CPA (Certified Practising Accountant) cannot be understated. The former will give you access to the best mortgage products on the market offered from a range of lenders, while the latter a good CPA will provide you with a clear understanding of your financial position and the various tax benefits that may be able to be utilised to maximise your returns from investing in this asset class. A good strategy that we have always employed throughout our property investment journey is, always surround yourself with people that are smarter than you.