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Empower Wealth Blog post by Empower Wealth

New to Property Investment? Here’s What You Need to Know

Have you always been interested in property investment? You may have watched television shows about it or heard about it from your mates at barbeque or dinner party last weekend. After much consideration, you may have officially decided to make it your business venture too. While many investors have great success with the properties that they have purchased, renovated, and rented out, it is important that you know what you are doing before you even begin to get started. For those who seem to rush right into the business without doing their research, it is easy for them to fail and lose out financially because they were not informed about the decisions they should make. Not doing research is one of the biggest mistakes anyone could possibly make in this type of venture.

Investing in property is good for several reasons. It allows you to earn passive income while still holding a separate job, especially if you like the other type of work that you do on the side. However, if you don’t like your full time job, a successful investment into properties over time provide you with the option to quit your job and pursue your passion. One good thing about investing in properties is that when you reach retirement age, you would be able to earn a passive income for the rest of your life because let’s face it, Superannuation and the Age Pension alone will not be able to sustain your retirement spending.

Who doesn’t want to have the opportunity to continue earning a steady stream of income for as long as they live and, have the peace of mind that their pool of money will not run out?

There are a few common mistakes that some of the new investors tend to make when they first get started. One of the first mistakes is not understanding the process and the lack of due diligence. What is the process? Let’s run through them briefly now.

Very often, a new investor would jump straight into buying an investment property when they stumble upon one either by mistake or by a recommendation from someone who isn’t qualified to give them that advice. Although we are not dismissing the possible opportunities from this kind of scenarios, it is advisable that you get an independent and professional view before making a commitment. For us however, the first step is to understand your current financial position and future plans. How much disposable income do you have? Do you have any significant upcoming expenses ie; a wedding or starting a family? When do you want to retire? Asking these questions provide a clear view on where you want to be, how you can get there and by when.

The next step is to get a pre-approval so you know how much you can spend and it helps to filter out properties that are out of your range. This might sound like a practical step but you will be amazed at the number of people who missed out a negotiation deal or an auction simply because they have yet to get their finances sorted beforehand. Sometimes, you might even find buyers bidding for a property and wining it only to find out later that they cannot afford it. Imagine the time and effort wasted not only on the buyers’ side but the others as well especially when properties bought at auctions are unconditional. But that’s a different article entirely.

Now, the next stage is to come out with a plan. A property plan that details your strategy. Do you go for high capital growth vs high rental yield? Metropolitan or regional area? Houses or apartments? There are literally hundreds of property investment strategies out there and each one of them helps to answer common questions. If you think this is just a number game, you are wrong. It requires a deep understanding on different property market and the skill and experience to predict where the market is going. It is at this stage as well where we look for the potential location of the property.

The Australian Property Market consists of multiple suburbs and new investors can sometimes get caught up in the moment and forgot to conduct their due diligence the location. Although it may look like it is fantastic on the inside and even on the outside, it does not necessarily mean that someone is going to want to rent out that property or buy it from the investor for a large sum of money, especially if it is in a less than desirable neighborhood. A poor location could amount to a poor profit too.

So, why is location so important?

Can you imagine finding an amazing apartment that looks exactly how you pictured it look with all of the amenities you could possibly want? Once you finally find that place that you have spend so much time searching for, wouldn’t you want it to be located in safe and friendly neighborhood? What would you do if you found out that such a wonderful apartment existed, but you would have to live in a high-crime neighborhood that is not safe at all? You would probably decide that it simply was not worth the risk.

As an investor yourself, you need to avoid making those same mistakes. It’s a fact that some property locations will be better than others in term of investment returns. Look for property worth buying in some of the areas that are in high demand. Look for areas with lifestyle drivers such as local cafes and shops, good transportation and plenty of good neighborhood schools for children to attend.

Now, the fun part! Once you’ve got your plan sorted, it is finally the time to start looking for the properties that ticks all the boxes. You are not looking for just any old property but rather for something that can help you earn your long term investment returns. While searching for properties, consider your criteria in your plan and put on your investor’s hat. Always remember that you are buying the property as an investment and not for yourself, unless of course you have intentions to convert it to an owner occupied home later on. While these specifics will depend a whole lot on your own personal preference, it is best to consider what would work well for those who are actually planning on living in the neighborhood. For example, if you are searching for properties in a family-oriented neighborhood, it may be a better idea to choose a house with a bit of a backyard for the kids and pets to run around. However, if you are searching in a university neighborhood with thousands of students living nearby, an apartment could turn out to be a money maker for you because it would offer those students a convenient place to live if they did not want to on the campus.

As fun as this property search can be, you might find it overwhelming. If you are lucky, you will find the right property fairly quickly but otherwise, it may take months. You may wonder if you are really making the right decision and worry about missing the market’s movement. Or perhaps if you are simply not having enough money. However, you will need to take calculated and informed risks as a property investor, otherwise you may never end up having the kind of success that you do want to have.

Once you have taken a few of these things into consideration and found the property, you may be ready to make your offer. The art of negotiation is one that you will want to understand and use in this stage. Everything from the price down to the settlement period are negotiable but you need to understand what to offer and timing it right. If you are unfamiliar with this stage, we strongly recommend a licensed and experienced buyers agent. They negotiate and bid for hundreds of properties a year where as a regular buyer would only buy a handful so naturally, they would be experts in this.

When you have bought your first property, the next step is to prepare it for your tenants. If you’ve bought a brand new property then chances are you won’t need to do much but if you’ve bought an established unit, a little bit of work will go a long way in your rental returns. A freshly painted property will impress potential tenants and gives you the power to increase your rent and choose a better tenant. Speaking of tenants, finding the right property manager is equally as important. A property manager is the conduit between you and your tenants. They are the ones that do the heavy lifting for you, provide you with all the information to help you make an informed decision. Hence, finding an experienced property manager that knows the area well and is clear with their line of communication is crucial.

Becoming a property investor does take research and effort if you want to get the best returns possible. After all, like we always say here at Empower Wealth, property investment is a science. Although you can earn a passive income from this type of occupation, there is work that you will have to do in the beginning to get you to that stage. Instead of rushing to choose the first property that you can find at a decent price, make sure to do as much research as you can, otherwise you could end up dealing with some of the same problems that others have had to deal with in the past. If you can avoid those mistakes, you will be better off. If you do make a few mistakes, do not dwell on them. Nearly everyone makes one or two minor mistakes when they start dealing with property. If you are afraid of making those mistakes, then engage a Qualified Property Investment Adviser who will guide you throughout the process.

 

ps: Empower Wealth offers a Free Property Webinar: Beginners’ Guide to Property Investment if you are interested to learn more on how to start investing.

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