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Property Investment
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The X-Company
Do’s and Dont’s of property investment
The DO's
- Do ensure you have done your research. Investing in property involves high stakes decision making. There is no substitute for research. You must ensure that you are doing the proper due diligence before committing. This will help you to decide not only what type of property you are after, but where is the best place for earning rental income/capital gain.
- Do consult outside experts. As a first-time investor, it’s crucial to have someone by your side that knows what they are doing. The property investment industry can be daunting to face alone, and many in the industry do not have your best interest in mind. Thus, it is crucial to consult with experts before deciding to invest.
- Do have a clear goal. Investing in property is beneficial, but with so many options it is paramount to have a clear goal. It’s important to know your current financial situation so you can decide on a goal to get you where you want in a way that is suitable for you. Having a clear goal and a structured plan to get there will not only help you avoid mistakes, but also save significant time otherwise wasted researching investment options that may not be relevant to you.
- Do set a budget. Most lenders will ask you to provide 10 – 20% of the deposit, which means you should have cash ready. You also have to pay for stamp duty, fees for legal, conveyancing, insurance and maintenance. It’s important to budget for ongoing expenses as well; repairs and renovations etc.
- Do get insurance. Anything can happen; from building damage to calamities and without insurance, you risk losing significantly on your investment
- Doleverage equity in your other properties. Use your home’s equity or another property investment if you have one, the equity will allow you to buy the new investment property.
- Do take advantage of negative gearing while getting positive cash flow.
- Do keep up to date with the property market. If you are looking to get involved in the property market, you need to keep up to date. Various podcasts, newspapers and forums provide up to date discussion and analyse of the Australian property market. Head over to our “best media concerning property investment” page to find out where to turn to.
The DONT's
- Don't buy in hotspots. Successful investors don’t buy real estate in the next “hotspot”. Instead, they follow a methodical system and don’t skip any steps because their system was developed to protect them during market fluctuations. Long term property investment should be about system and strategies, holding long-term and keeping a steady hand instead of searching from temporary “quick wins” via investing in the latest hotspot.
- Don’t buy a property because it is cheap. Property investment is not about finding the “cheapest deal”, instead, it is about finding the best return on investment. Thus, buying a more expensive property with more growth potential may be more beneficial in the long run than buying a cheaper property that will not increase in value. Ultimately, there are more important factors than just the price tag.
- Don't think bigger is always better. Just because land appreciates and buildings depreciate doesn’t mean you should always buy houses. Houses are very expensive with, often, very little demand from renters, meaning not only is the price of the property more volatile, the yield is much lower.
- Don't try and time the market. Buy low and sell high is a difficult strategy to manage. The cost of getting in and out of property, meaning you’re much better to ride out any flat or quiet periods rather than trying to get out and then in again.
- Don’t overpay. While it is important not to be cheap, it’s also important not to overpay. Don’t be sucked in by flashy growth promises or “long-term” tenants. You need to know where the value point is and ensure that you are fully aware of the cash flow and lease structure. Do your research and consult experts before making decisions.