Top tips for first time property investors

In Australia, there are over two million property investors. While most start out with the intention of building a wealthy portfolio, only a few reach the top treads of the property ladder.  

There’s more to a successful property portfolio though, than a pretty house in a good location. Aesthetics and area matter. But long term strategy and smart preparation will propel investments further.

Ready to start your investment portfolio? Read these tips first.

Understand the property market

Knowledge is power.

To understand property markets and their various cycles, invest time into solid research. There’s no point buying a large family home in central Sydney if renters are after a smaller unit. Likewise, a one-bedroom unit probably wouldn’t be suited for a rural area when most people are living in three-bedroom houses. Without knowing the market, how do you know what type of property will suit it?

It’s research that doesn’t happen overnight. But understanding which properties are most sought after in a location opens yourself up to a larger pool of renters, ultimately increasing your income.

Invest in the right strategy

Both your savings strategy and long term investment strategy must be diligently planned. Set realistic financial goals first. Then consider investment strategy options.

For positive cashflow, include high growth, low yield properties. These types of investments give a passive income. To achieve capital growth and fast gains, include negatively geared properties into your strategy.

Emotion vs logic

It’s natural to base purchasing decisions on what your heart wants, especially as a first-time investor. Only 10% of these decisions are made on logic. But the 90% that’s based on emotion is a culprit for clouding judgment and over-capitalising on your purchase.

Instead, think with your head and focus on finances over fixtures.

Sort facts and analytical research, from the colour you want to paint your bedroom.

Consider if the property:

• Is aligned with your investment strategy
• Offers the gains and returns you need (set realistic goals)
• Appeals to the target renters market you’re seeking

Location is still important

Always do your research on the location before buying.

Ask yourself:

• Is the population growing?
• What are similar properties selling for?
• Are there proposed developments in the area which may affect prices?
• What are the average rental returns and vacancy rates?
• Are there local amenities, such as public transport, schools, shopping centres and parks?

Tenanted properties create reliable income streams. A house with all the right features in the wrong location won’t be an attractive option for protective tenants or buyers. Instead, start by researching areas where residents have high disposable income for long term growth prospects.

Tip: Review census statistics, consider past sale history of properties and look at multiple properties in the area to weigh up all factors. Avoid buying the first property you see as you’ll likely overpay. Before you commit to the purchase do a financial analysis on as many properties in the area to determine what a good deal or great investment would look like.

Calculate all costs

There are more costs to calculate than a genuine savings plan and a decent deposit.

You’ll need to budget for contingencies, land taxes, rates, insurance, maintenance and management fees. A good rule of thumb is to allow 10% of the property’s value for these costs. Track all costs involved in buying and holding the property to manage good cash flow.

Other costs to put into your budget are:

• Stamp duty:  Which can be as high as 6% of the property value and varies between states and territories
• Loan fees: When you apply for finance, you’ll also need to pay an application or settlement fee. Different lenders charge different rates
• Valuation fee: To ensure you’re not overpaying. Building and pest inspections may also be necessary and if you’re buying a strata property, you’ll need a strata report
• Lenders Mortgage Insurance: Is payable if you borrow over 80% of the value of the investment property
• Legal fees and conveyancing costs: Payable when you invest in property

Tip: Invest in the right financing to avoid watching profits disappear. The good thing about property investment is you can use your mortgage to fund your property portfolio to substantially increase returns. To maximise profits, check tax deductions you can claim like Capital Gains Tax.