For those looking to secure their future, and grow their financial portfolio, investing in property is still one of the safest bets.
That said, it certainly is not without its risks, and in no way should be considered a ‘sure thing’. However, if you thoroughly understand your financial situation, and have a good knowledge of the property market, you could find yourself with a very lucrative, long-term asset.
So, whether you’re a beginner or seasoned property investor, here is a quick overview of 8 of the main ones you should think about.
Table of Contents
1. What’s your plan?
It is important to formulate a clear understanding of what you expect from your investment purchase and a plan for securing it.
Are you looking to sell it for a quick profit over the next 3 to 5 years? Or will it be something you will pass on to your children by way of inheritance when you die? Is it somewhere you could use as a holiday home? Or will it be the place you will eventually downsize to when you retire? What type of property are you looking to invest in?
Being 100% sure of what the purpose, and overall plan, for your investment property is, will make it easier for you to make sensible financial decisions based around those goals.
You will need to devise a budget based on this plan, which takes into account your current levels of income and expenditure, as well as additional costs like mortgage and council rates that will be applicable, once you buy the property.
Doing so will give you a firm idea of what price range you can afford, and set you on the right path towards making a successful investment.
2. Ensure you have a good credit rating
Once you have the plan sorted, (and really, even before you have the plan sorted), you should take steps to ensure you have a very good credit rating.
This is crucial when attempting to purchase an investment property, as financial institutions are more likely to approve loans if you can show you pay your current mortgage, bills, and any other loan repayments on time.
You will also be shown favor if you regularly save money into a bank account and maintain an overall low credit balance.
Your credit score demonstrates your overall fiscal responsibility. It is also true that often, the higher your score, the better interest rates you can secure on the loan for your investment property.
3. Get expert advice
If your plan is solid, and you have a good credit rating, the next thing you should do is get expert advice to assist you with your property search.
When initiating the search for your property, it is important to engage a property consultant. Armed with industry knowledge and connections, they will be able to find you a property that suits both your budget and needs. Whether that be an existing dwelling, or an off-the-plan property from within a current development.
Whilst the search is ongoing, it is also worth collaborating with an experienced mortgage broker, who will be able to assist you with the process of securing the right type of home loan for your requirement.
A good mortgage broker could potentially save you thousands of dollars over the course of the loan, by tapping into the best rates available from their network of mortgage lenders.
Once you have teamed up with a property consultant and a mortgage broker it is also worth lining up a property manager too.
Property managers can be invaluable, as they take all the hassle away from finding suitable tenants. They can also make regular inspections of the property on your behalf to ensure there has been no damage to it. As well also as manage the process of receiving rent payments for you.
4. Do your research
Before making a bid for any property it is essential that you do your research on it.
This should involve gaining a thorough understanding of factors like the state of the property and whether its price represents good value. It is important also to determine the cost of any repairs or renovations required, and to factor that into the overall equation.
Additionally, you will need to ascertain if the street or suburb location is a desirable one for people to move into. Consider too, what amenities and public transportation links there are in the area, as this will enable you to work out the most suitable type of tenant.
Also determine, what the average rental income might be, and how that compares with other suburbs and overall market trends. Try and find out from the local council, whether there are any new proposed developments that could affect the valuation of your investment property as well.
Collating all this information will ensure you can make a fully informed decision as to the feasibility of purchasing an investment property.
5. Get yourself a conveyancing lawyer
Prior to purchasing any investment property, you would be well advised to hire a conveyancing lawyer.
Not only will they be able to look over the necessary contract and paperwork with your best interests in mind, but they will also ensure you meet all the legal requirements involved in buying the property.
In addition, they will also conduct all the searches that need to be done to ensure there are no major issues at the property.
6. Utilise any equity you may have
If you have equity in your home, you can actually use that to fund the purchase of an investment property.
Equity relates to the current value of your home. More specifically, it is the amount left over after you subtract the sum of the outstanding balance of your mortgage with the current value of your home.
For example, if your home is worth $425,000 and you still owe $275,000 on your mortgage, then the equity amount you have is $150,000.
The good thing about equity is that it can be used to your advantage by borrowing against it to fund the purchase of an investment property.
Not only does this help you to keep a healthy cash flow, but it also increases your overall borrowing power, as well as your tax deductions.
7. Aim for positive gearing
One of the main reasons why investing in property is so popular is because of the opportunities it raises for positive gearing.
In this article Joust explains positive gearing in more detail. However, as a rule, if your investment generates more revenue in terms of rental income, than the cost of outgoings associated with home ownership, that is the sweet spot you should aim for.
It is worth investigating whether your investment property will do this prior to submitting an offer for one.
8. Explore the Tax Implications
Real estate investments can have some enticing tax benefits.
Before committing to a purchase be sure to seek advice from an accountant as to what the tax implications might be for your investment property.
This may include such things as deductions, depreciation and negative gearing.
Final Thought
As we mentioned right from the outset, investing in property is a very savvy way of growing your finances and securing your future.
There are a host of property types available for you to purchase, however before you do so it is important to thoroughly analyse and evaluate all the considerations outlined above.
If you undertake extensive planning and meticulous research, as well as talk to relevant, experienced professionals who are experts in their field, this should go a long way towards safeguarding an investment that will ultimately be very successful for you.
Also, you may have an interest in the best-paying jobs in real estate investment trusts.
