Property is one of the leading investment choices for multi-millionaires and working families alike. Not only is real estate seen to be ‘safe as houses’ (the stability of property investment is actually where that saying comes from), there is a prestige associated with property ownership. With housing considered a basic human need, having multiple properties and being able to generate an income by leasing out your extras is seen by many as the height of success.
The physicality of property is also a big part of its appeal. Being able to touch, feel, and walkthrough your investment really sets the property apart from other options, like stocks and managed funds. Having a tangible asset can also provide an extra level of comfort, particularly when financial markets are trending downward.
Usually seen as a long-term investment, the property is an opportunity to establish a legacy. A well-managed property will largely pay for itself, allowing you to passively build equity. This can then be leveraged to fund further investment or other future plans. Investment properties can even be passed on to the next generation, giving them a leg up onto the property ladder.
With all of this in mind, it is easy to see why so many are eager to break into property investment. But buying property is daunting – there are a lot of numbers to be crunched, decisions to be made, and legal and financial requirements to be met. How does one even know where to start?
Tip #1: Define Your Investment Goals
It may seem obvious but having a clear view of what you want to achieve from your investments is critical. Many first-time investors take the plunge somewhat blindly, believing that property is always a good way to go. However, if you don’t have defined goals, your investment will be unfocused, and your returns will likely suffer.
There are plenty of tools and resources out there designed to help you set your investment goals. While these vary somewhat depending on the source, they usually focus on three key points – knowing your finances, knowing your timeline, and knowing why you want to get the property. The last point is particularly pertinent as there are many reasons people choose to invest,including:
- to help grow their retirement nest egg
- to increase their family’s financial security
- to create a legacy for future generations, and
- to generate enough income to stop working.
Whatever your motivation, knowing what you want to achieve from your investment will make decision making much easier. Using your goals as a yardstick, you will be able to measure the potential of every opportunity to move you closer to – or further from – where you want to go. It will also help you weather the inevitable stresses and strains of investment and can even help drive you to continue growing your portfolio.
Tip #2: Seek Expert Advice
When it comes to investing in property, there is no shortage of professionals who can help you navigate the process. From securing your finances to managing the property, there are people who specialize in every step along the way. As such, you should never be afraid to ask for help – though you do need to make sure you only seek support from credible and reliable sources.
For example, real estate agents are a great source of local market knowledge. They will also be able to guide you on the types of property renters in the area look for and what returns you could expect. However, it is important to bear in mind that they have vested interests and may try to push you toward the properties they are selling.
With this in mind, working with a more independent professional – like a buyers advocate – is usually a better idea. Not only are they not tied to a particular property or portfolio, a good buyers agent will think wider than the local market. They should also be able to guide you through the buying process and can help negotiate the sale price and terms.
Tip #3: Do Your Own Research
While expert advice is great, your investment decisions are ultimately yours to make. As such, it is important that you do your own reading.
Thankfully, there is a wide range of tools available to help you, particularly when it comes to choosing the actual property. The major real estate sites are a great place to start as even a cursory search should show you what your budget will get you. Looking at rental listings will also give you a sense of what features to look for and what returns you are likely to achieve.
Some services also offer ‘suburb reports’, summarising key market data. These provide great insight into the potential profitability of properties in a particular area and could help you refine your target location(s). They are particularly useful if you are considering buying in an area you are not particularly familiar with.
Doing your own research will not only increase your knowledge and expertise, but it will also help you assess any professional advice you get. While investing is largely a numbers game, there is invariably a level of subjectiveness in a market as dynamic – and fundamentally emotional – like real estate. As such, it is important you are fully equipped to understand and question any recommendations you receive.
Tip #4: Focus on Finding Your Second Investment… and Third
While property investment may be widely talked about, statistics show that less than one in five Australian adults have actually made a purchase. Moreover, of those that have, the vast majority (almost three-quarters) only own the one property. While this level of investment may be perfect for some, it seems safe to assume that many would prefer a larger portfolio.
So, what is stopping most investors from acquiring multiple properties? Doesn’t the capital growth and rental income from the exiting investments make future investments easier? Not necessarily.
As most rental properties are negatively geared (i.e. they cost more money than they make), they reduce the investor’s ability to secure and service further finance. Additionally, there are a number of mental and emotional barriers investors need to overcome if they want to grow their portfolio. These include:
- Adjusting to the additional time and effort required to manage a rental property.
- Overcoming concerns about market volatility, which inevitably increase as more money’s invested.
- Making the time to monitor the market and identify potential opportunities.
If growth is your goal, it is important to find a ‘model’ (location, property type, etc.) that is repeatable. Also, capitalizing on your early momentum can be critical – whether that be by choosing to split your initial investment (e.g. buying multiple lower-priced properties instead of one more expensive one) or having a clear timeline for acquiring the next property.
Tip #5: Remember to Celebrate
Buying an investment property is a big deal. There is a lot of money involved, more than a little risk, and the potential for great rewards. You’ll have also put in a lot of time and effort, surely felt at least some stress, and made many decisions.
As such, your success deserves to be acknowledged. Each time you hit a milestone (e.g. buying a new property, securing a tenant, etc.), take a moment to celebrate the progress that you’ve made. It doesn’t need to be a big thing –just something to say ‘job well done’ to yourself.
You should also take the opportunity to step back and reflect on the experience. How did you find the process and what did you learn? And, knowing what you know now, what will you do differently next time?
Investing is a long term game, with plenty of ups and downs along the way. Celebrating wins will help you ready yourself for the inevitable challenges ahead. The sense of achievement will also keep you driving forward toward your ultimate investment goal.
signing deed for property -DepositPhotos