10 Steps to an Enjoyable Investment

money houseInvesting in property has become part of the Australian dream for many of us. It’s generally less volatile than the share market, it’s tangible, there are tax incentives and it produces income along the way. It’s a great way to build wealth — if you know what you’re doing.

Here are 10 things that can make all the difference.

1. Prepare for the pitfalls
Knowing the pitfalls of being a property investor is critical to your investing success. These can include high entry and exit costs, extended vacancy periods in difficult markets, increased interest rates, unexpected maintenance costs and changes in tenants’ circumstances.  If properly planned for all of these challenges can be overcome. Surrounding yourself with the right team will make any unforeseen challenge much easier to deal with.

2. Identify your investment profile
It’s true that many investors ‘fall’ into property investing. They might have been gifted a property via a will, or they might move out of their own home and turn it into an investment property.  A good financial planner and property management agent will not only seek to understand your needs, they’ll match your needs with your investing profile. They’ll help you avoid painful mistakes such as choosing a property with high maintenance needs when you just want to buy and forget. Similarly, knowing if you’re investing for capital growth or yield will determine the type of property that suits your needs best. The Living Here Kogarah team have precisely this expertise.

3. Look for location growth
Once you know the type of property and the type of tenants you’re after, you need to know where property prices are predicted to grow.  Look for areas with low vacancy rates, low unemployment and potentially an undersupply of property and oversupply of tenants. (If you are opting for a new property in a relatively new area, understand that it may take years for the rents to stabilise since every time new builds are released, the rental price may fall.) Again, this is where expert local advice is invaluable.

4. Consider your market
What do good tenants pay for? Most good tenants want secure neighbourhoods, access to public transport, shops, café precincts, beaches, parks and onsite parking.  But if your investing profile suits a low maintenance unit then you might benefit from targetting professional couples with views, easy lifestyle, entertaining space and access to the CBD. If you are considering buying a house you need to think about what families really need & want – good street appeal, space for the kids and extended family, fencing for pets and access to a good local school.

5. Calculate the costs
Some costs that are obvious, others that are less so. Partnering with the right accountant will really make a difference. Take into consideration the following: strata fees, council rates, insurance, legal fees, mortgage repayments, renovation and maintenance repairs, management fees, conveyancing fees, building inspection etc. And understand the benefits – tax depreciation, negative gearing, capital growth etc.

6. Set the strategy
Are you purchasing to renovate and ‘flip’ or are you in it for the long haul?  Always start with the end in mind by developing a well thought-out exit plan. These days many investors are pooling their funds. This is a great way to share the risk and the high entry costs, but if you don’t have an exit strategy and one of your partners’ circumstances change, things can get messy quickly.

7. Manage your risk
When you’ve found the right property, ensure all the legals are taken care of and don’t cut corners. Order a valuation and make sure a building & pest inspection is completed.  Also think about minimising vacancy periods by including a clause that says you can begin seeking tenants once the property goes unconditional and build in an agreement that the property will be professionally cleaned.  This can save you a couple of weeks rent.

8. Find the perfect property manager
Finding a great property manager is as important as finding a great childcare worker, doctor or dentist. Your property manager should be stable in their role, have several years’ experience, know the legislation (query them!) and should ask you why you’re investing and how this investment fits in with your plans. They should also ask how you’d prefer to communicate and they should provide a written guarantee of their services.

9. Review your strategy
Is your property performing in line with your expectations and initial plan? A property that isn’t performing to your expectations is a headache, not an asset.  Review your property with your Property Manager and financial planner at least once a year.

10. Keep an eye out for opportunities
With the right team around you, other opportunities will open up to increase your portfolio and build your wealth.