If you’ve made it onto this page, we’d have to assume you’re new to buying investing property. Either that, or you’re just keen on getting the information. It doesn’t matter where you’re at, we’re more than happy to offer up the following property investment advice for beginners, after all, that’s exactly what Investment Property Help does!
Almost everyone has an opinion on property. Almost no one really knows what they’re talking about. When it comes to investing in property there are a small handful of people you should listen to: seasoned investors, reputable sales agents, reputable advisers, accountants and financial advisers who are investors. If you’re wondering how to buy an investment property, no doubt your ears will prick up when people start talking about what area will be next, their recent bank valuation, what a friend of theirs has done and so on. Here’s my advice to you: block your ears. Why? Because property investing is just that – investing. Talking and sharing misguided and ill-considered opinions isn’t investing, it’s a sure way to derail your ambitions and will lead to procrastination, wasted time and probably mistakes. Now I’ve made my point about what it is that we’re supposed to be doing here, below I’m going to highlight a few key areas that we feel are important to know.
The reality check
This is the first stage any new client coming to IPH will experience and I’d wager 95% or more Australians haven’t done it. Stop for a moment to honestly consider where you are in your financial life. How much are you earning? How much will that increase year-on-year going forward? How much unproductive debt do you have in your life? Do you have good or bad spending habits? Can you save enough money for retirement on your current earnings or will you need to invest? If you need to invest (which I can tell you right now you do), then what can you afford to invest in?
Most Aussies live in a bubble where they think that by the time they stop working, somehow, miraculously, they’ll have ample funds to retire on. Dream on. It isn’t going to happen unless you take the time to set goals, make a plan (I recommend reverse engineering for a proper reality check), and execute. Can you do this for yourself? If not, find someone you can trust to help you. Fast.
Know why you want to be investing in property.
If someone were to ask you why you were keen on buying an investment property, what would your answer be? Can you distil this down into a few key reasons that are going to provide you with enough motivation to follow through and make the purchase? Buying investment property ‘because it’s something you’ve always wanted to do’ won’t provide the motivation and subsequent momentum to make this happen. Here’s some inspiration: To use some of the tax you’d normally give to the ATO to help you fund the ownership of an asset you’d otherwise be unable to afford; To eventually put yourself in a position where you can either refinance or sell the investment property to wipe away your home loan, leaving you without a mortgage in retirement; To purchase multiple investment properties whenever you can afford to, thereby putting yourself in a position where you can own your home debt-free, plus a few income producing investment properties so you can retire with income. To put yourself in a position where you can own your home and a beach house plus a convertible 1964 Chevrolet Impala. Get my drift? In many ways this ties into the Reality Check and the importance of goalsetting.
Now you know where you are, where you want go and why you want to get there, you must learn how to get started. The very first step – finding out how you could afford to invest in property is relatively straightforward and something a reputable mortgage adviser can assist with. What resources do you have access to? How much equity do you have in your home? If you don’t own a home and have no equity, how will you find a deposit? If you have neither of the above, how long before you will? Could someone who trusts you, and vice-versa, loan you the deposit. Interesting how we’ve come back to the reality check. Let me keep asking questions: Have you physically picked up the phone and spoken to a mortgage broker, or are you still using the (slightly misleading) online calculators and basing your decisions on the results? If you haven’t spoken with a finance expert, how do you know for sure what your capabilities and limitations are?
Once you have your figures straight, and even a pre-approval, you’ll need to school yourself up on how to buy investment property, if you haven’t already done so. How are you going to buy – using a buyer’s advocate, Property Investment Adviser or real estate agent? What areas are you considering and why? On what information are you basing your decision? New or established, if established, how old? Off-plan, private sale or auction, what are the advantages and disadvantages of each? Once you’ve decided firmly to get on with investing in property you’re going to realise there’s a lot to learn. Not only the different elements of investing but the reasons why a successful investor might have a strategy that encompasses a string of these elements to drastically reduce risk. You might be wondering why I haven’t touched on location, transport, amenity, schools, parks, proximity to employment and so on. The fact is these basic points are rudimentary – property investment for beginners 101.
What you may not have considered is how depreciation might affect your cash flow and subsequent affordability, how certain property types rent well in some areas only, how generally an inverse relationship exists between yield and capital growth and what to make of it, how to make gains based of infrastructure spend, how to attract the right type of tenant, the importance of an excellent property manager, how the right accountant can materially affect the outcome of your investment and the importance of correct legal advice. We’re just scratching the surface here. Learn all of this, plus everything else you possibly can about property investing before buying an investment property. Are you a learner-type personality? If not, seek advice from a qualified professional or risk sitting paralysed on the sidelines
The point here is to highlight how much there is to learn, not to bamboozle you or impress you in any way at all. I’ve been involved in the industry for nearly a decade and I’m still learning – that’s why I love it. In saying that, myself and team here at IPH are at the coal face dealing with builders, plans, local councils, sales agents, brokers, accountants, lawyers, clients, everyone involved in the industry. If you want sound advice, and skip the years of learning, you can ask me or someone like me, for advice on how to invest in property.
This might sound corny, but I’m big into ‘teach yourself’ books. I like reading or listening to audiobooks on all sorts of subjects from investing to philosophy. One of the more memorable lines I read recently is ‘No man is an island…’ written by John Donne. Why is this relevant? Because this phrase is true in life as it is in investing you won’t be able to go this alone. You could, but investing in property won’t be nearly as successful and remember, buying investment property should be an enjoyable experience.
At a minimum you’ll require these professionals around you to bring you success.
- An ace finance broker (I mean ace) to arrange your finances. It’s impossible to understate the importance of the advice you get around borrowing and the relationship you forge with this person. Ensure they are skilled, come recommended, are experienced, professional, honest and fast.
- Network of agents, a buyer’s advocate who specialises in investment property or a qualified Property Investment Adviser. Our way isn’t the only way to invest. If you’re working with IPH, we’re doing all the work for you – that’s our service. Our job is to show you how to buy an investment property. If you choose not to work with us, then you’ll be out looking at property a few days a week and spending most nights researching opportunities. If you’re not doing that, then you’ve networked like a little beaver and have assembled a team of retail sales agents who will take you seriously and help you get a good deal. Although unlikely, this can happen, but if you don’t know the market then how do you know if the opportunity represents value? This is the input/outcome equation popping up. You might need to spend a year researching a particular area of the market to confidently understand value. If in doubt, use an adviser you like and trust.
- An accountant. Whilst you don’t necessarily need an accountant, depending on your situation, I reckon they can be most helpful. A good accountant can help you structure your investments for maximum tax efficiency. They can also help you to understand how you can afford to invest, help with budgeting, reining in unproductive spending and importantly, encourage you to invest again – to help you build a property portfolio. Finally, a competent, property-minded accountant will ensure you’ve got all the necessary tools required to achieve the cash flow that you forecast (I hope you did that) at the beginning of the exercise.
- Conveyancer or property lawyer. Slightly different in title and skill set, but for the purposes of this paragraph, they’re grouped together. If you’re keen on investing in a particular property, have your solicitor check the contract and no questions are raised, consider the thoroughness of the solicitor. Similarly, if the contract is so marked up with requests and changes that the deal is unlikely to go ahead, you must question the commerciality of those changes and the mindset of the solicitor. They are there to help you get the transaction through on terms agreeable (workable) to both parties. ‘Get yourself a good lawyer’ is as true a saying in the movies as it is in property investment for beginners.
We’re only scratching the surface here, and these are but a few of the basics I feel are good for you to know before investing in property. Where to from here? Depending on which stage you’re at in the journey, you’re heading back to the top of the page to re-read and make notes, have moved on to another one of our blogs or have decided to get in touch. Don’t feel dismayed if you’ve not even thought of these four key areas. Investing in property is, dare I say it, a journey. The could enjoy the journey for a lifetime or you might be satisfied with a quick trip resulting in one purchase. The take home point here is to remove as much risk as possible by knowing your situation, the reasons you want to own property, either acquiring knowledge or getting assistance, and finally, surrounding yourself with a dependable, professional team.