11 Things you Must Consider when Buying an Investment Property

1. What is your aim when investing in property?

2. What is the strategy that you wish to pursue?

3. What type of property – new v existing?

4. Location

5. Plans for the area

6. Rental Demand and yield

7. Capital Growth

8. Finance – how much can I borrow

9. Adopt a long term view

10. Find a good Property Manager

11. What is your planned exit strategy?

1.What is your aim when Investing in Property?

Remember the property is not the goal!  Your goal may be to grow your wealth, to increase your cashflow, or even create an income that you can retire on.  The most specific your goal is the better as well.  Try to identify how much wealth you are trying to attain, how much income you need in retirement etc.  That will make the job of achieving it so much easier.

Whatever the goal is, that you are seeking to achieve, it is important to work it out right at the beginning.  That will allow you to create a plan up front that if followed can get you where you want to go.

2. What is the strategy that you wish to pursue?

Once you have an idea of the end result the you are seeking to achieve you can work on the plan or strategy.  They type of property or the location make be different based on what your strategy is.

If your strategy is about wealth creation, then you may be prepared to forgo a little income to achieve higher levels of capital growth, the opposite may applied if your goal is about income.  If your goal is about retiring into the property then you might be considering a property at the beach or the mountains.

There are a few strategy based ideas that will always be important.  Can you buy the property at a keen price, at or below market price?  Is it in a location where demand is high and will remain so?  Will the property appeal to owner occupiers.

Other strategies that can be utilised include, renovation, sub division, positive cashflows etc, there are many to consider.

3. What type of property – new v existing?

The biggest question facing a new property investor.

So both have advantages, and you should check with your Accountant to consider the taxation implications.

New properties will either be on the outskirts of the city or be inside a new apartment block.  Both of these have some drawbacks when it comes to trying to achieve capital growth, and some times even finding a tenant.  When an apartment block opens there may be a couple of hundred units that are available to be rented, an owner that is keen to get a tenant may lower the rent, to get someone in.  This will have the effect of causing all the rents to fall.

An existing property is generally located in a higher growth region, and has the advantage of being able to add value by undertaking a renovation.  on the negative side there may also be higher levels of of maintenance required.

Some of the best advise here is to talk to local property managers who know what properties are worth from a rental perspective as well as demand and yields in the area.

4. Location

Location. Location, Location is a real estate saying that we have all heard.  It is equally important for property investors as it is for home owners.  Putting yourself in a potential tenant’s shoes and consider the things they will be looking for in a rental property, will show you the location can be an important factor. Things like access to public transport, quality schools and other amenities that are part of most people’s lifestyles, such as shops and restaurants, will make the property more appealing to a tenant.

Which will make it easier to rent for a higher amount.

5. Plans for the Area

What are the plans for in the area that you are considering?  Will there be large infrastructure projects undertaken, creating new jobs and employment?  Are there improvements to schools, shopping, restaurants or public transport coming to the area.  All of these can be positive signs for a region.

There can be some signs that may be a negative as well, an ageing population with declining employment, major roads cutting a suburb in half, new noisy factories opening up.

It is important to consider what is planned for your selected area and how that may impact the outcome for your investment.

Here in Brisbane we know that the 2032 Olympics are coming and there are many major infrastructure projects planned, so this is a big positive.

6. Rental Demand and yield

7. Capital Growth

Capital growth is basically the increase in the value of the property over time. You should be looking into the growth-trend indicators for the property, suburb and region you’re thinking of investing in – what’s the median sale price for the suburb? Has it increased over the past few years?

Then you should look at what is happening to drive capital growth. Is the population growing? Is the economy in the area stable? Are there new jobs in the area? Are people moving to the area?

These are all things that could indicate potential growth in the area. If you’re investing and want to see capital growth then you’re going to want to see growth indicators in the area. If people are leaving and there are fewer jobs every year, then it’s likely that you’re not going to get the growth that you want.

8. Finance – how much can I borrow

Usually a mortgage broker is a good place to start here, but make sure that they are familiar with setting up loans for property investors.  It is very important that you do this in the correct fashion, so that you are protected as well as getting the best tax outcome.

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

Regardless of whether your property is going to be negatively or positively geared what would happen if the property was not rented for a long period of time? Could you afford the repayments on it if things don’t go 100% to plan?  Plan B is always something to consider, some call this the gut feel test.

The worst thing that can happen if being forced to sell a property because you cant afford it.  Especially if the market has not gone up or even gone down.

9. Adopt a long term view

It is important to remember that investing in property is a long-term investment. It is prudent to not rely on property values increasing straight away. The longer you can afford to remain with a property the more likely you are to be benefiting from rising prices and as you build up equity (capital growth) then you may look at the option of purchasing a second investment property.  Now your portfolio is starting to build along with your wealth.

10. Find a good Property Manager

A good property manager can make a big difference to the final result that you achieve with your rental property.

They can give you advice on property law, your rights and responsibilities as a landlord – as well as those of the tenant. They’ll also take care of any maintenance issues, saving you a lot of time and money.

Another job that  the property manager can assist with is helping you find the right tenant, they will conduct reference checks and make sure they pay their rent on time.

The good news is that the cost you pay to your managing agent is usually a percentage of the rent paid, is deducted from the rent and is tax deductible.

A property manager can also assist before you purchase your investment property.  talk with them and they can guide you about what returns are likely and what sort of improvements you can make and the likely result.

You can always discuss your requirements with the Hicks Real Estate Property Management team.

11. What is your Planned Exit Strategy

Knowing what you want to achieve is vitally important and equally know how you will exit from a property investment is also important.

You may simply hold and generate an income from it in retirement.  You may need to sell the property to allow you to retire debt and improve your balance sheet.  Knowing what the process will be will help you to avoid making mistakes that can negatively impact on your results.