10 Things to Consider when Buying an Investment Property

This useful article by Michael Yardney, the director of Metropole Property Strategists tells us about 10 important tips and helpful strategies that we need to examine before purchasing an investment property.

How do you succeed? Where do you start?

Our property markets have turned the corner and there are more people interested in getting into property investment.

However if history repeats itself, and it most likely will, while some will develop financial freedom through property, many investors won’t get past their first or second property.

So how do you succeed? Where do you start? There are so many options out there, everyone seems to have an opinion and many of their suggestions are conflicting.

To start you on the right path I’d like to help by suggesting ten questions that, I believe all budding investor needs to get their head around before buying into the property game.

1. What do I want to achieve?

Is it money? Wealth? Financial freedom? Maybe all of the above!

Remember the bricks and mortar are not really the end goal; rather they’re just the vehicle you choose to get there.

So firstly identify your end goal and then formulate a plan to get you there in a timeframe that works for you.
You see...property investment, as with any other journey, requires you to know where you’re heading and how you intend to get there.

Unfortunately most investors don’t have a plan and that’s why they get lost along the way or get distracted by the latest investment fad or the next “hot spot.” And if they do have a plan they rarely review it to make sure they’re on track.

2. What is my preferred strategy?

Once you know where you are going you need to implement an investment strategy that helps you get there.

Since you can’t save your way to wealth so my goal is to build a substantial asset base though capital growth. My 4 stranded strategy to achieve this is:

1. Buy a property below its intrinsic value

2. In an area that has a long history of strong capital growth

3. I look for a property with a twist – something unique, special or different and

4. A property where I can manufacture capital growth through renovations or redevelopment.

3. What type of property?

You need to own the right type of property; one that will be in continuous strong demand from both owner occupiers and tenants, because the former push up market prices, whilst the latter help to pay your mortgage.

Today more people are trading their backyards for balconies and that’s why I prefer inner suburban apartment style accommodation.

4. Should I buy something old or new?

More often than not, new or off the plan apartments are a “box” in a high-rise monolith. The problem here is that you pay a premium to the developer and miss out on the first few years’ capital growth. At the same time the majority of owners in the building are likely to be investors. I prefer buying where owner-occupiers, who look after the building better, predominate.

If you haven’t guessed it by now, I prefer to buy an established apartment, in a character filled block, which has the potential to be “tarted up” with cosmetic refurbishments.
This gives you the potential to not only increase your rental income, but also “manufacture some capital growth.

5. Where should I buy?

Location is critical to the long term performance of your investment. I look for suburbs that have always outperformed the averages or ones going through gentrification. These are generally lifestyle suburbs in major capital cities close to the CBD, amenities or the water.

Then I drill down even further and chose the best spots in those suburbs.

6. When should I buy?

While there are investment opportunities at most times, I’ve found that many of my successful investments have been made by going against the crowd and buying when most people are worried about the market and sitting on the sidelines.

7. What can I afford?

Before you start looking at what to buy, you need to know what you can afford to buy. Get a loan pre-approved and make sure you’ve set some funds aside for acquisition costs, holding costs and a financial buffer for a rainy day or rising interest rates.

8. How will I set up my purchase?

It’s important to own your property in an entity that protects your assets and legally minimizes your tax. Whether you buy in your own name, your super fund or a trust, you need to be aware of what it will mean for you and your family, now and in the future.

9. Who should I ask for help?

If you are the smartest person in the room, you are in the wrong room! The real estate game is a team sport, requiring expert input and advice from a qualified accountant, a smart solicitor, a finance broker, an independent property strategist and a mentor who will help set you up for a win.

10. Should I take advice from my friends and family?

In general the answer is - no! Not unless they’ve invested successfully through a number of property cycles.
This is because “the crowd” is usually wrong. When everyone’s optimistic, people come out of the woodwork keen to give well-meaning advice, however investors tend to be most optimistic at the peak of the cycle – when the risk is the greatest. Just like they are pessimistic at times when the property market is flat and the risk of further downside is low.

As our real estate markets pick up and the cycle moves on, a whole new generation of investors will enjoy the prosperity property can bring. If you ask the right questions you could be one of them.

Author: Michael Yardney

Article Source: http://au.pfinance.yahoo.com/our-experts/michael-yardney/article/-/17999116/10-things-to-consider-when-buying-an-investment-property