Updated: Aug 28
20 Quick Tips for First Time Property Investors.
If you’re looking to enter the property market there can be a lot to get your head around at first. It’s important to know the facts as well as handy tricks to help you get the most out of your investments and stay on top financially. We’ve saved you the information overload and put together 20 key tips for first time property investors. As usual if you need more information about anything in today’s blog you know who to call:
Understand what it will really cost you (it might not be as much as you think)
When estimating what your first investment property will cost you, calculate the following:
Interest cost + rates + land tax + agent’s fee + insurance = total ongoing costs
Ongoing costs – rental income = annual shortfall
Annual shortfall – tax deduction = annual after-tax cost
Look at this annual cost as a weekly amount and consider if it’s in your budget or if you can allow for it.
Consolidate personal loans
Save on paying too much interest by consolidating any personal loans you may have. This can also help increase your borrowing capacity.
Cut down on credit cards
Did you know the number of credit cards you have in your name (even if you don’t use them) may be taken into account by lenders? Look at paying off and cancelling any excess cards.
Location, location, location
Seriously, think about the demographic and behavioural characteristics of residents in different suburbs. Do the houses you’re looking at suit their needs? It’s crucial to understand the profile of your potential
renters to give you the maximum rental income.
Know the true value
It is absolutely essential to select a property that is likely to increase in value over time in order to make money from your investment. You also want to buy at the right price to maximise your return. Shopping
around and having a good understanding of future trends for the area can help with this.
What you see isn’t always what you get
When buying real estate, the value of a property is not always black and white, and pricing can be quite fluid. The benefit of this is you may be able to purchase a property for less than it’s true market value if you get the right deal.
If you plan to hold onto a property over time, always think ahead at least 7-10 years. Research potential plans for changes to infrastructure in the area that could affect your investment (positively or negatively). You also need to think about your personal financial situation and what you will do if your income reduces for any reason, which brings us to our next tip…
Hope for the best, prepare for the worst (just in case)
We never like to think about the worst case scenario, but just in case something does go awry, be sure to have a cash reserve organised before you get started. This can be done via a line of credit or redraw facility. It always pays to have this peace of mind, especially if you’re supporting a family.
Be prepared to rent your properties out
One of the easiest ways to keep property investing feasible is to maintain a reliable rental income stream. This is also vital for keeping your cash flow up.
Get finance right from the start
Your borrowing ability could be diminished later on if you don’t get your finance right in the beginning. After all, the amount you can borrow will control the potential size of your portfolio.
Buying a property that needs work can be a great opportunity to increase your returns if you’re open to renovating. Just be sure to consult the experts to make sure you don’t get in over your head with any serious issues that are difficult or excessively expensive to fix. A professional building inspector can help with this.
Keep it simple
There’s a reason bright yellow cars don’t have the best resale value – they’re not to everyone’s taste. If you do renovate your investment property, keep it simple and opt for neutral paint choices and classic fittings for the kitchen, bathrooms and laundry. Trends come and go, but it’s best to keep them for your own home and play it safe when it comes to a property someone else needs to enjoy living in.
Think about the class of residential property you’ll buy
Land, standalone houses and units can have different performance in the market. Think about the differing maintenance costs between a house compared to a unit when making your decision.
Plan for success
When you’re ready to start growing your property portfolio, it really pays to go in with a detailed plan. Make sure you document exactly how much finance you will require and conduct a cash flow analysis to determine how you will cover the costs of your debt.
Structure your portfolio correctly
If you want to maintain flexibility, decrease your risk and make tax time easy (who doesn’t?) then it is well worth setting up your portfolio correctly from the start.
Connect with the best
Property investment can be a minefield when you aren’t sure what you’re doing. Even if you have some knowledge, you’ll want someone in your corner who is highly experienced and well-connected to get you the best possible deals.
Hire a property manager
A property manager can take care of all the maintenance required for finding tenants, looking after the property and conducting inspections. Find an experienced property manager you can trust, especially when your portfolio grows beyond one house.
Know what’s tax deductible
Many of the costs associated with owning investment properties are tax deductible. One of these is the cost of paying your property manager!
Choose carefully between fixed vs variable rate loans
Talk to a professional about whether a fixed or variable rate loan might be better for you. Variable rate loans can come out cheaper over time, but if you have good timing it can be worth locking in a fixed rate.
Use the equity from your own home
Your equity is the difference between what your home is worth and what is remaining on your mortgage. This can be leveraged to borrow more money against an investment property as well as increase your tax deductions. Make the most of it!
For more great tips and how to avoid the financial pitfalls of being a First Home buyer speak to one of our experts on 02 8313 8400 or visit our website.