If you are just getting started with
real estate investing, there are some important things you should consider
before taking the big leap.
Buying a property can be a daunting
idea when you realize all of the things that need to be done. Looking,
researching, negotiating, losing out to someone else, getting finance organized,
getting legal advice, getting inspections done (building, pest, strata etc.)
and finally, draining your bank account to finalize the purchase!
Here we will discuss a few things to
think about to help lessen the burden.
Clarify
Your Goals
It’s a good idea to do some reading
and research about property investing, if you haven’t already.
After getting some expert advice, either from advisors or books, you should have a good idea about what strategy you want to follow to achieve your wealth creation goals.
After getting some expert advice, either from advisors or books, you should have a good idea about what strategy you want to follow to achieve your wealth creation goals.
Common strategies in property
investing include:
- Long Term Investing for
Positive Cash flow
- Long Term Investing for Capital
Growth
- Short Term Holding, Renovating
and then “Flipping”
- Short Term Holding, Speculating
on the Property Cycle
The type of property that you want
to buy is also an important decision. Apartments, townhouses and units will
have different returns compared to houses or even commercial property. The area
that you invest in will play a critical role in how your investment performs as
well.
With longer term investing, it can
take years to start seeing gains from your investment.
Property investment is definitely not a get rich quick scheme and once you purchase that first property, you will need to let go for a while and just focus on keeping up with the costs.
Property investment is definitely not a get rich quick scheme and once you purchase that first property, you will need to let go for a while and just focus on keeping up with the costs.
Short term holding of property is a
riskier exercise for the novice and it is recommended you take a long term
position if you are new to
the area.
the area.
Get
Your Finances in Order
You normally need a decent deposit
and pattern of savings before purchasing an investment property. The exception
to this is if you already have substantial equity in another investment (such
as the family home or stocks).
Always aim to reduce personal debt
such as credit cards and personal loans as this reduces your cash flow and is
looked on negatively by
the banks. If you end up buying a property which is negative cash flow, you will need to demonstrate to the lenders that you can sustain these payments.
the banks. If you end up buying a property which is negative cash flow, you will need to demonstrate to the lenders that you can sustain these payments.
Dive
In
Once you’ve decided on your strategy
and gotten your finances in order, start researching areas that will be in high
rental demand. This is one of the most important factors, because if you
purchase your property but then struggle to rent it out, you will be left
paying off the mortgage out of your own pocket.
After doing your proper research and
due diligence, make an offer on a property where the numbers stack up as a good
investment. Remember that investing in property is a decision based on
calculations and statistics; it should not be an emotional decision such as
buying your own home.
You should avoid procrastination too
much because time in the market is normally better than “timing the market”.
Good luck with your investment endeavors!
