Although many Australians have a keen interest in real estate, less than 10% of us own an investment property. If you’ve considered investing in real estate but don’t know where to begin, this guide can help you start building your own property portfolio.
Property ownership is a well-established form of investment in Australia, yet there are a number of factors to consider before you decide to where to purchase. Whatever your goals are, it’s important to understand how property fits into your long-term financial goals.
1. Do your finances
The first step is knowing what you can afford. Get an accurate picture of your assets, debts and available cash flow, and prepare a solid budget. Ask yourself whether you could maintain the expenses (mortgage repayments, rates, repairs and maintenance) of owning the property if it was untenanted for a while. And be sure to have a buffer in your budget for such occasions.
On top of regular home ownership expenses, additional costs you will need to budget for may include property management fees, landlords insurance and repair costs for tenant wear and tear.
2. Seek out good advice
There’s no shortage of people with an opinion on how to make money in property – so be selective. Avoid any get-rich-quick schemes and rely on a variety of respected professionals until your own expertise grows. A good place to start is ASIC’s MoneySmart website, which has a great summary on residential property investing.
3. Know your end game
Think about what you want to achieve from property investing. It might be to add property assets to your retirement fund or self-managed super, or to use the cash flow as a source of income. Whatever your goal, try to clarify the time frame and level of risk you’re comfortable with to ensure your strategy matches your individual objectives.
4. Define your strategy
The next step is to devise a plan that takes your budget and circumstances into account. Examples of property investment strategies include:
- Long-term capital growth
- ‘Fix and flip’ (renovating for quick sale)
- Positive cash flow
- Negative gearing
Experts suggest adopting a blended strategy to balance capital growth and cash flow, and to reduce your overall risk exposure.
5. Set your property criteria
Make a list of the essential criteria you have in mind. You’ll need to consider:
- Unit or house
- Number of bedrooms
- Property features
- Age of the property
Remember property investing is a business decision rather than an emotional one. Follow your plan and don’t allow yourself to be distracted by sentiment.
6. Make the purchase
Once you’ve found the property, it’s time to act. Stick to your budget and negotiate hard. If necessary, walk away and repeat the process until you secure the right property for you.
After the purchase, you will want to consider engaging a property manager to handle leasing your new investment. When looking for a property manager, seek out someone with experience in the local area.
An investment property requires ongoing management if you want to improve your returns. In addition to regular maintenance, you should consider reviewing your loan regularly to ensure you aren’t paying too much in interest and fees. – Trevor