Property Investor Tips
Planning your first property investment?
Posted on Monday, April 06 2009 at 10:03 AM
Here's a handy checklist you can run through before you make your move into the property market.
- Understand your reasons for investing in real estate
Begin with the end in mind. Remember you're investing to secure financial independence, which means you want to create a passive income and build equity. - Establish your investment goals
Examine your finances, both now and long-term, and determine how much money you will need to maintain your standard of living when you reach financial independence. Allow for inflation. - Locate sources of investment capital
This could be equity in your family home, savings, borrowing from family, or joint ventures with family or friends who have equity. Husband and wife teams can consider saving one salary or, if there is only one income, putting at least 10 per cent aside each pay. - Understand the power of leverage and compounding
Choose a property that will have strong capital growth, obtain the right finance and allow time for the magic of compounding to happen. - Select the right investment for you
For beginners, residential real estate is a good starting point. If you have time, renovate established properties or develop new ones to boost your returns. As you become more experienced, you may consider buying industrial, commercial or retail properties. - Determine the form of ownership
Your financial adviser can help you decide the most appropriate form of ownership. You could put the property in your name or your spouse's. There may be asset protection and tax benefits in setting up a company to act as trustee of a trust to own the property. Seek advice about the fees involved. - Get to know the rules of thumb
Become familiar with the various techniques that will help you in choosing and analysing investments. Understand the property cycle and how it affects values. - Locate your investment property
Research the market and become thoroughly familiar with the area you want to buy in, property prices and rentals. In other words, develop your "investment comfort zone." - Analyse your prospective investment
Analyse the property's investment potential by verifying the rental income, expenses, financing, overall benefits (e.g. cash flow, returns, capital growth), and price. - Use the financing technique that gives you the best results
Research various lenders and their terms and fees. Alternatively, you can engage the services of a finance broker to do this for you. - Consider the tax consequences
Analyse your investment from a tax viewpoint by calculating your after-tax income, taking into account depreciation allowances. Remember, it doesn't matter how much you make, it’s how much you get to keep after tax that counts. - Negotiate the price
When negotiating for the property, remember the three vital elements – information, time and power. Know what price and terms you are willing to accept. - Take the necessary steps before and after settlement
Find a competent conveyancing solicitor to handle the conveyance for you. - Set up a record-keeping system
Whether it's on paper or a computerised spreadsheet, a simple book-keeping system will keep you on top of your property business. - Monitor your investment with return in mind
Don't fall in love with your property. Think of it as a money-making machine. If it doesn't do what it’s expected to do, think of alternatives such as renovation to maximise its return. - Structure the sale to suit your needs
If you need to sell, establish a reasonable selling price based on actual market value (and not your pride of ownership) and consider the tax implications of selling an investment property. - Secure your financial future
Pyramid your property investments to build wealth. Borrow against the increasing equity and use these funds as a deposit on your next purchases.
Source: Metropole Properties and Australian Property Investor magazine.
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