Property investment is a popular move for many people in a variety of economic climates. The long term value of real estate has been proven time and again, especially in Australia where market conditions support prices that have grown steadily over time. The market is strong. In fact, 1.7 million people in Australia own an investment property.
For those considering getting started, here are five steps for investing in property the smart way – taking measured, carefully researched steps in the market in its current condition.
- Check Finances and Get Pre-Approved
Start with a comprehensive review of your personal finances. List your assets, including income, and determine what your expenses are currently and what they would be after purchasing an investment property. This will help you determine not only your current available cash for investment, but where you will be after your first purchase.
After this is done, it’s time to talk to a lender. Going through a broker is recommended for anyone who isn’t 100% confident in the current state of their portfolio. You should only apply for a single pre-approval, so you want to be sure it is done properly and results in a positive result, so work with an expert you can trust. “Shopping” your loan around the market (the process of seeking multiple approvals) can actually hinder the process.
- Outline Short and Long Term Goals for Your Investment
Property investment is just that – an investment. So you should have clear goals set well ahead of your first purchase. Determine how much you want to make from your endeavor, over what period of time you want to make that money, and how it breaks down in increasingly small chunks of time. If you don’t know how much you need to make over a 30-year term, 10 years, or even 1 year, it will be hard to approach the task intelligently.
- What Are You Willing to Take On?
Risk is part of investment, but how much risk can you take on? If you have a family and other big expenses looming like university studies, weddings, or travel, those should be taken into consideration when budgeting. How averse are you to losing some or all of your investment if something goes wrong? That’s another question you need to have a clear answer for.
- Create a Budget for the Process
Now that you know your goals, the amount of risk you are willing to take on, have a clear number in mind from your preapproval, and know your current assets, you can create a budget targeting those goals. The last thing you want to do is try to invest in a property without a clear budget in mind – always have a number before you try to make a purchase.
- Start Researching Properties
This is where people start to get excited. Steps 1-4 are trying – they require you to take a fine tooth comb to your finances and personal situation and layout exactly what you hope to achieve based on your findings. Sometimes, those findings are not pretty.
But once you know what you can afford, have the preapproval in hand, and are ready to start looking, it’s an exciting time. So much so, in fact, that many people get over excited and move too fast. Rather than making a hasty decision that might result in a poor investment, do your research. Define how you plan to reach your goals, where you want to purchase, and who you will work with. This is an ideal time to start speaking with professionals who can help guide you in the right direction in terms of information.
In your search, and in closing, I believe that lifestyle plays a huge role in Sydney. Finding an investment property in any price point, that puts the home closest to those lifestyle opportunities (think: parks, beaches, playgrounds) will always increase the rentability and potential return on investment.
When to Invest
Only after you’ve taken each of these steps, carefully determining what you can afford, what you want to deal with, and how you plan on working towards your goals in both the short and long term, should you pull the trigger.
It’s an exciting time and the opportunities that smart property investment can bring are huge. Just take your time and know that you’re making the right decision. It’s well worth it.
Personally I look for unrenovated homes in Sydney with plots of greater than 600 sqm. Land is still king and tends to offer the most solid return on investment. If searching for a unit as your first investment property then I tend to focus on smaller blocks of units of 8 apartments or less within the complex. This offers the opportunity to buy into the unit more readily, and one day become a major stakeholder in the building. The other benefit of smaller units is that they have a lesser turnover rate, offering less competition when selling which leads to more stability in the property price.
I find that most importantly in the process is setting a goal to NEVER SELL your investment property. With that in mind it is ideal to look to work well within your risk appetite and budget. The purpose of holding onto the investment property as a growing asset is that this gives you the best ability to ride through any varying market conditions.
Ultimately there isn’t a single correct answer, as every budget and concern is personal to you. I believe rental return should always be a solid criteria for reducing risk, but more importantly the prospect of future gain through capital growth. This could mean buying in an up and coming area, a popular area (like Sydney seaside suburbs) or simply in an area close to the three SSS’s, i.e. Schools, Shops and Stations (train/bus).
A good example is a home Etch Real Estate sold in December 2015 in the Sutherland Shire, Gymea:
16 Houston Street Gyema, SOLD $1,210,000 (Etch Real Estate website)
Only a small plot of land but upon investigation with planning and zoning at local council the land could be sub-divided and a single dwelling built on one half, and two 3 bedroom townhomes on the other. Making the purchase a great potential for equity growth.