There is so much material out there for would-be property investors to read and digest, it is easy to get information overload. And when this happens it’s often easier to rely on commonly held adages, but I would like to challenge some of them.
I hear it said all the time that investors should not buy with their hearts, they should “do the numbers” and make financially based decisions. The problem with this thinking is that investors often ignore the criteria that owner occupiers look for. And owner occupiers are the buyers who push up property prices, so by trying to avoid this end of the market you could be limiting your capital growth prospects.
Also, properties that appeal to owner occupiers may be more likely to rent well (as people will want to live in them).
When I hear people telling me that they have bought an interstate investment property sight unseen, I cringe. Who and what are they relying on for their information and due diligence?
Surely not the marketing provided by the selling agent. Or even worse, information provided by a so-called “buyers agent” who is in fact working on commission for a property developer. Even if you are not basing your decision on information provided by biased sources, nothing beats a physical inspection.
Don’t be afraid of competing for quality property. That includes auctions. If more than one buyer wants it now, chances are that more than one buyer will want it down the track when you go to sell. Do your price research and let that determine what you are prepared to pay. Then the idea of fighting for it won’t be so scary.
Work out whether you need capital growth or rental yield or both. At the moment you can get up to 5% interest on a term deposit at the bank, so if you aren’t getting capital growth I’d suggest there are better places to park your money.
Buying new or off the plan is like buying a brand new car, most of the time you lose money as soon as you drive out of the showroom. So be careful of being seduced by depreciation and guaranteed rent returns. It can take years before you start to see any improvement in value.
If you managed to make money once by renovating a property and flipping it, quit while you are ahead! That ship as sailed in many suburbs: now getting back a dollar for every dollar spent renovating is a challenge. And then there are the acquisition & selling costs to factor in.
Nothing beats market knowledge when it comes to making wise property decisions. Legwork may be time consuming and tedious, but it is not overrated. If you aren’t inclined to do the research yourself, engage an experienced buyers agent.
Top 5 questions every property investor should ask:
1. What is my investment goal? Earn an income? Capital growth?
2. Can I afford the repayments if interest rates go up by 2%?
3. How long can I afford the repayments if the property is untenanted?
4. How hands on am I? Do I want to ‘set and forget’ or add value through renovations?
5. Do I fully appreciate the risks and costs associated with making a mistake? Should I get independent, professional help?
Veronica Morgan is the co-host of Location Location Location Australia and principal of Sydney based Good Deeds Property Buyers.
The information in this article has been provided by a third party. Aussie makes no representations about the accuracy, reliability or completeness of the article. The article does not constitute financial, tax or legal advice. Any suggestions or recommendations made in the article should not be relied upon as such. If you need advice, you should seek advice from your own professional advisors.