Purchase Your First Investment

If you’re looking to purchase your first investment property, you’re not alone, and there have been countless before you. Unfortunately, it’s often impossible to know exactly what is involved until you have experienced it yourself, but why make the same mistakes as those before you? With this in mind, let’s take a look at eight steps you can take to make your investment experience is as smooth and successful as possible.

1. Be mindful of finance management

It’s one thing to be able to buy a property and another to be able to afford to hold on to it, which is why cash flow management is vital to your success.

One of the most important steps you can take is to examine each investment analytically and ensure adequate allowances for contingencies. Extended tenant vacancy periods or unexpected maintenance costs can creep up on you if they’re not factored in. Seeking professional advice from a qualified, professional mortgage broker or accountant is also a wise move. In the meantime, a general guide is to allow about 10% of the property’s value for costs such as land taxes, rates, insurances, maintenance and management fees. 

Remember, overestimating your expenses and underestimating your income will reduce the chance of any nasty cashflow surprises.

TIP: Securing Landlord Insurance can be a great investment. Click here to read more about it.

2. Understand the property market

There is no fast-tracking to understanding the property market – it will take time, and even then you may never fully gain a grasp on it as it can elude even the greatest experts.

Your best option to set yourself up for success as a first-time investor is to become familiar with the areas you are looking at purchasing a property in. Attend open homes and auctions, talk to real estate agents, the local store attendant and property managers. Research the areas’ services, rental prices, property values and vacancy rates. It is also worth looking into the current property cycle phase. Are prices steady or beginning to rise? Have they peaked following a rapid price increase or is there about to be a drop in property prices, otherwise known as a ‘correction’? Understanding this can help you to make more considered and confident decisions when purchasing your property.

3. Your property is your business

When purchasing an investment property, it’s important to view it as a business and to remember that businesses are built over a long period of time. Rarely are they a quick fix to becoming a millionaire, nor should they be treated as one. 

One of the first things to do is create a cohesive plan of what you need to do to make your vision a reality. Determine where you want to end up, consider short-term and long-term financial goals, whether they are realistic (particularly within your timeframe), identify potential risks and create key performance indicators so you can measure the success of your plan as you execute it. 

Smart and successful property investment requires careful consideration, so goal-setting should start before you even purchase a property. To do this, look for a strategic property plan that has been tried-and-tested or, better yet, start to build an expert team to assist with your investment by hiring a financial planner to help you set your objectives.

As time passes, regularly ask yourself: is your property portfolio working for you or are you working for it? 

4. Lock in the right loan

Finding the right home loan can be the difference between financial freedom and financial failure. Shop around for an experienced, professional mortgage broker who can find the best home loan to suit your current financial position and future objectives. 

There are countless home loan options available, each suiting everyone differently. The right lender will be able to review your numbers, help you to understand the type of property you can afford and secure you a loan that will align with your strategic property plan to ensure you are making a long-term profit on your investment.

To read more about taking the first step to getting a home loan, click here.

5. Selecting a property that doesn’t suit your target market

This seems like an obvious point, but there are many aspects of property purchasing that comes into play that people don’t consider. First and foremost, the property needs to be chosen based on the financial benefits it can provide. 

You already know you need to research the areas you are interested in, so you can then ask yourself: can you expect a good rental return and a steady increase in property value? Will it provide the returns you require to adhere to your strategic property plan? Is it in an area that will appeal to quality tenants? If you can’t answer yes to any of these questions, consider branching out a bit further. The property you purchase doesn’t need to be close to where you live – another city or area may actually be a better investment to add to your property portfolio.

When looking at specific properties, take note of the marketable details of the house, including proximity to public transport, shopping, schools, parks and even local crime rates. It’s also important to take into account the layout and design when purchasing or renovating a home. Who are your target tenants? Does the layout of the home suit them? Is it practical for their day-to-day lives? The key factor here is to purchase and renovate for profit, not style or personal preference – it is a business, after all.

TIP: Before you purchase the property, it is a great idea to invest in a professional inspection to ensure your prospective property is free of major defects.

6. Secure a strong team

Purchasing an investment property is extremely costly, so when it comes to managing it, you can be forgiven for considering to manage it yourself. Unfortunately, the work involved in finding tenants, understanding rental laws, collecting rent, conducting regular inspections and maintaining the property is often underestimated. Your time is valuable and chances are you’re already working a full-time job, so you don’t need another one! 

Securing a team of the right people who can help you to make strong decisions is a valuable asset to have. You already have a financial planner on board who has helped you with your strategic property plan and a mortgage broker who has assisted to secure the right home loan. Now it’s time to consider investing in an accountant to provide advice on tax and to cover things you may not have thought of; a solicitor to read through all of the legal jargon that comes along with purchasing and managing an investment property; and an experienced real estate agent to manage the tenants, so you can more confidently move towards your goal of financial freedom.

7. Earn money by maintaining

Life is busy and more often than not the urgent matters take precedence over the important – until they then become urgent. Consistently maintaining the property is a perfect example of this and while it may feel like it’s costing you more money in the short-term, long-term it can actually save you. Regularly maintenance on the air conditioner unit, fixing a wall crack and repairing a roof leak before they become serious can save you a considerable amount of money and headaches in the long-run.

Not only will a well-maintained front yard, a fresh coat of paint or regular maintenance on the home be significantly more appealing to potential tenants, but it will also increase the overall value of the property. 

8. Obtain a tax depreciation schedule

Depreciation can be difficult to understand, so this is where the accountant on your trusty investment team will be of great benefit. They will be able to recognise items that can be used as a tax deduction against your taxable income and you can walk away each year with more money than anticipated. 

As a first-time investor, you may be unaware of the items in your investment property that can be depreciated at a certain rate or that it’s important to value these items up-front, so getting the accountant on board to set up a depreciation schedule from the get-go will be a wise move. 

Taking on your first investment property is a huge step, but you don’t have to do it alone. By taking on these tips and investing in the right people to assist you, it will be a much more smooth and successful experience.