Getting starting in your property investment journey or simply wanting to learn how to perfect the process?
Read on to find out my key tips for any investor within the residential property market.
1. Know Your Budget.
First things first, investors need to understand how much they can borrow from the bank.
Some of the first steps include:
Step 1: Getting Pre-Approval: Ask your bank or a qualified mortgage broker to assist with pre-approval for your investment loan. This will make it clear what property price point you should be looking for and can afford to purchase when it comes to crunch time.
Step 2: Cash Flow: Before you start hunting for properties, it’s important to understand the ongoing costs. Make sure you know exactly how much rent you expect the investment property will achieve.
It is always best to have a rental appraisal done by a local property manager with a long track record and positive reviews. Once you know the expected weekly rent and the ongoing associated costs for the property, you can then work out your weekly, monthly and yearly cash flow.
Remember, always have a cash savings buffer for any unforeseen circumstances such as maintenance issues that could arise.
To help you have a clear understanding of property investment cash flow and all the ongoing costs visit our article here.
2. Don’t Speculate.
Aim to select a market that is both desirable for potential home buyers as well as tenants. A sound starting point is to identify a suburb that has a higher proportion of owner-occupiers compared to renters.
Ideally, the suburb would have at least 70% owner-occupiers compared to 30% renters. This statistic can be identified using the most current census (quick stats) and illustrates that the market is desirable to homeowners and a healthy proportion of renters is in place.
To also help pinpoint a highly demanded market, tick off key existing infrastructure such as;
Schools
Public transport and connectivity
Shopping centres
Parks and recreation
Hospitals and medical centres
3. Set Long Term Goals.
Everyone’s financial and property investment goals will differ. Regardless, everyone wants to live comfortably in retirement, and property investment can be a strong vehicle when creating wealth.
Think big and work your way back, come retirement how much wealth do you think you'll need to create to live comfortably once you hang up the boots?
For example, your retirement goal could be paying off the home you live in and owning $1 million in assets unencumbered to fund retirement.
This could potentially be a portfolio of three residential properties including one owner-occupied home (paid off conservatively over 25-30 years) and two $500,000 investment properties (paid off also in 25-30 years).
Let’s say the two investment properties are conservatively achieving $500 each per week in rent, this would be $1000 a week or $52,000 a year before tax.
Most people would be happy with an additional $52,000 gross passive income in their pocket, but is it enough to fund your lifestyle and retirement?
Considering the home in the scenario above is paid off and the above portfolio doesn’t include the superannuation and any additional savings accumulated in this period, many would be happy to call it a day and set off into the sun.
In contrast, the above portfolio may not generate enough passive income for one’s lifestyle and ideal retirement goal. Again, everyone’s goals and life expectations will differ and you must personally articulate what your goals are and map out your plan.
As you can see, it’s a great exercise to put down on paper what you’re looking to achieve and what success looks like to you in number terms.
Set your long term goal, then break down into yearly, monthly and even weekly goals, so you what you need to do to achieve your long term success.
You’re not alone and if you find the above overwhelming, seek the advice from a reputable financial planner who could assist you with your long term financial goals.
4. Set A Budget To Work Towards Your Plan.
Whether your long term goal is to own two or four properties, adhering to a budget can help you manage the ongoing expenses and help in securing that next investment property faster.
Capital growth is crucial for long term success for property investment, as potential equity can be utilised to fund the deposit for the next property. Property investment is generally a long term game, however, building equity on the back of capital growth alone will take many years.
Setting yourself a budget shouldn’t just be about managing your expenses, it can also be utilised to help you understand where you can save additional cash.
By cutting back on little things and budgeting, the additional savings built up over time can then go towards funding the next property investment deposit, and in turn, help you progress towards the end goal. For our top savings tips click here.
5. Build A Network & Stay Up-To-Date With The Market.
To assist with the overall success of a property investors portfolio, it’s ideal to have the support of professionals, including;
Accountant
Mortgage Broker
Solicitor
Connecting with like-minded investors can also be motivating and valuable.
Keeping up to date with the market conditions via online blogs can be extremely valuable and help you stay motivated and working towards your long term goals.
To stay up-to-date with everything property investment make sure you join our Weekly Property Market Pulse Newsletter here.
For further reading:
Jarryd Gauci – Property Investment Consultant
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.