Things To Know Before Buying an Investment Property

know before buying an investment property

Six Things To Know Before Buying an Investment Property:

You may be thinking about buying an investment property. Australia has a strong property market, which attracts a lot of buyers. However, there are some property investment basics to keep in mind.

The attractive Australian house market has many people investing in property. For beginners, this means learning the property investment basics that will lead them to success. After all, property isn’t a sure thing. It may offer more security than investing in stocks, but you have to put the work in to generate an income.

So what do you need to learn before you invest in a property? Here are some things you must know about property investment for beginners.

Issues #1 –How Much You Can Borrow

You need to know how much you have to spend before looking for an investment property. If you don’t, you run the risk of finding the perfect property, only to discover that you can’t afford it.

You can get a general idea for how much money you need when buying an investment property.

Calculator websites allow you to enter some figures to produce a rough estimate. They’ll ask about your income, in addition to any expenses you currently incur. These include everything from your debts, through to the dog food you buy each week.

However, you won’t know for certain until you speak to a lender. Most importantly, you must find out how much of the property value you can borrow. This will tell you how much money you must raise for your deposit.

Issue #2 – Your Investment Plan

Most people approach property investment with a simple end goal. They want to make enough money from their property to quit their jobs. However, many don’t really understand what this means. Enough money for one person may not be enough for another. Depreciation Calculator

So, you need to have a plan in place before you start investing. Work out how much income you need your investments to generate before you can live off the proceeds.

This is your real goal. A vague notion of early retirement won’t keep you focused. You need to know exactly what you’re shooting toward before you invest your money.

Issue #3 – The Different Types of Gearing

You may have heard of gearing, without really understanding the concept. You need to learn what gearing is to create a strong investment plan.

There are three types of gearing: positive, negative, and neutral. Positive gearing means that your property generates enough income to cover its expenses, with money left over. You have to pay tax on your income when you have a positively geared property.

Negative gearing means your property doesn’t generate enough money to cover its costs. This may sound like a bad thing. However, you can use negative gearing to your advantage. Many investors offset the losses their properties make against other income sources, such as their salaries.

As the name suggests, neutral gearing means the income covers the costs. You don’t make any profit, but you don’t lose money either.

Issue #4 – The Choice Between City and Rural

There’s a huge difference between city and rural properties. City properties give you access to more people, which makes it easier to fill vacancies. However, rural properties allow you to charge higher rents. You can also buy rural properties for less money.

So, which do you choose? It all comes down to what you want to achieve. City properties tend to enjoy higher capital growth than rural properties. However, it’s easier to positively gear a rural property.

You need to do your research before creating any property investment strategies. Australia offers all sorts of opportunities. Consider area population, local economies, as well as demand when choosing where to buy your property.

Issue #5 – Who Provides Legal Advice?

You’ll have a choice between conveyancers and solicitors when looking for legal advice. Both work in law, but they’re slightly different.

Conveyancers focus solely on property law. They’re highly specialised, but won’t be able to help you with any issues that aren’t directly related to the property. Solicitors offer well-rounded knowledge on a range of issues. However, they also cost more money.

Your choice depends on the property. If you anticipate a lot of legal issues, hire a solicitor. This usually costs between $2,000 and $3,000.

A conveyancer costs approximately $1,000. Use these professionals if you anticipate a simple transaction.

Issue #6 – Your Exit Strategy

Depreciation Quote ScheduleYou should achieve success with proper planning. However, that doesn’t mean that you don’t need an exit strategy.

Your exit strategy determines how you’ll generate a profit from your investment. For example, you could decide to sell after a set amount of years to take advantage of capital gains.

Alternatively, your exit plan may involve benefitting from the rental yield until you retire. Upon retirement, you could move into the property, rather than sell it.

The main point is that you need to know how you’ll exit the investment. If you don’t, you can’t take full advantage of the property during your ownership period.

The Final Word

Investing in property could help you to enjoy a greater level of financial comfort. However, poor preparation will lead to mistakes and potential losses. You need to know how to maximise your investment before you commit your money to a property.

Washington Brown can help you with that. Our Quantity Surveyors can help you to calculate how much you can claim in depreciation. Get in touch today to find out more.

Five Money-Draining Mistakes to Avoid as an Investor

Mistakes to Avoid as an Investor

Before starting your career as a property investor, you need to arm yourself with more than the property investment basics. If you don’t, you may end up making some costly mistakes.

Investing in property is more difficult than you might think. It’s certainly a more reliable way to generate an income than other types of investment. However, that doesn’t mean that there aren’t any risks involved. In fact, approaching property investment without a plan could result in you losing a lot of money.

As a result, you need to learn more than the property investment basics before you move forward. There are all sorts of mistakes you could end up making when investing in property. For beginners, these mistakes could lead you to financial ruin.

Mistake #1 – Using Emotion to Make Decisions

Think back to when you bought your first home. What were you looking for? Most buyers look for something that draws them to the property. They may have specific features in mind, or they fall in love with the décor.

This leads to them making decisions based on emotion. This is fine when buying for yourself, but it causes major issues when buying investment property. Australia has millions of people who don’t think like you do. They’re your potential tenants, so you have to buy with them in mind, rather than yourself.

Basing your decisions on emotion means you may spend too much on the purchase. It also blinds you to what your prospective tenants would want. Instead, you need to think about the needs of your target market. If the property doesn’t cater to them, move onto the next opportunity.

Mistake #2 – Failing to Manage Your Cashflow

While the property investment basics often cover how to find a good property, they don’t always focus on issues like cashflow. The fact is that property investment is a business. As a result, it comes with the same pitfalls as operating a business. Depreciation Quote Schedule

You need to understand all the additional costs that come with your property. For example, you have to account for how much the property will cost when it’s unoccupied, as well as when it has tenants. Unexpected maintenance can also place a burden on your finances. Of course, there’s also the issue of tenants failing to pay on time. All these problems affect your cash flow.

Many investors recommend holding back a tenth of your property’s value to cover such issues. If you don’t, you may find that the unexpected costs lead to failure. An investment property cashflow calculator could help you to stay on track.

Mistake #3 – Going it Alone with the Mortgage

You may think you can handle the stress of finding a mortgage for your investment property. However, this is usually a mistake.

Going it alone often means that you miss out on some of the best financing options. Remember that lenders want what’s best for them, ahead of what’s best for you. The wrong financing can come back to bite you later on. You may end up paying more interest than you ought to. Or, you may not have access to special loan features that could help you.

As a result, it’s best to work with a mortgage broker when searching for a home loan. Their expertise may prove invaluable. Plus, they can often provide access to mortgage products you wouldn’t find on your own.

Mistake #4 – Not Finding Out About the Seller

The seller’s situation will affect how you approach negotiations. However, many investors don’t even try to find out more about the seller.

Most sellers won’t give you a direct answer if you ask why they’re selling their property. However, that doesn’t stop you from looking for clues. For example, you can use your property inspections to look for signs of poor maintenance. This often suggests that the seller is undergoing some personal or financial hardship.

You can use this information to strengthen your negotiating position. It may seem cruel, but remember that investment is a business. Don’t allow your emotions to prevent you from getting a great deal.

Mistake #5 – Not Doing Adequate Research

Depreciation CalculatorThe need for research is one of the property investment basics. However, plenty of investors fail to learn as much as they can about the property market before spending their money.

Reading a book or two won’t equip you with the knowledge you need. You have to learn about the specifics of the property’s area to stand any chance of success. Talk to local estate agents and people in the surrounding neighbourhood. Research property prices to ensure you’re getting a good deal. Most importantly, find out what the area has to offer that might appeal to your tenants.

This will take time, but it’s worth it. Quality research lowers your risks, which increases the chances of achieving success.

The Final Word

Many novices make some critical mistakes when entering the property investment sector. They only read about the property investment basics, which results in them crashing and burning. In the end, they end up losing thousands of dollars.

You must avoid these mistakes. Furthermore, you need to consider the tax implications of owning an investment property. That’s where Washington Brown can help. Speak to a Quantity Surveyor today to find out more about claiming for the depreciation of your assets.