Purchasing an investment property can be daunting; after all, there is so much to consider. Making the right choice can feel impossible for first-timers, but if you follow some simple steps when searching, you will find real estate investing much less intimidating.
1. Figure out your budget first
Your budget should be step one. Before you consider different locations or types of property, you need to set your budget. This means figuring out how much of a deposit you can afford, how much you can borrow, and what you are comfortable spending. The best way to do this is to get pre-approval for a loan so you know exactly what you have to work with.
2. Consider how much debt you’re committing to
Investing in property is generally considered ‘good debt’ because it will earn you money over time, but that doesn’t take away from the reality that it is still debt. This is especially important if you are still paying off your own home. It’s by no means necessary to have paid off your home in full before making an investment, but it is advisable to have a good amount of equity as well as other debts like credit cards or car loans under control before you commit to any residential property investment.
3. Take ongoing costs into account
The most valuable thing you can do during this process is to make sure you are not overextending yourself financially, and in order to do that, you have to get real about the ongoing costs of owning an investment property in Australia. When you plan your budget, consider every expense, including ongoing maintenance and management fees. It can be tricky to predict these with absolute accuracy, but you’ll be far better off by overestimating instead of underestimating.
4. Consider which locations suit your goals
Obviously you want to pick an area of high growth for your investment property, so do your due diligence when you are looking at locations. For example, is it in a good school district? Is it close to adequate public transport and important infrastructure such as hospitals, places of employment etc? However, it is also important to consider the property itself, and whether it will suit your goals. If you are looking for a quick profit, and don’t mind putting in time, money and effort into the project, then you could consider buying something in need of renovation. If you are looking for something that requires a lot less work upfront and can grow in value slowly over time, then purchasing an investment property is the best option for you.
5. Buy with your head, not your heart
With an investment property, it is critical to remember that this is a home for someone else, so focus on liveability and the kind of features that renters will be looking for, such as parking, storage, modern appliances etc. Ensuring the property is stylish and trendy is not always the best way to approach this, especially if you’re targeting families. Weigh up the pros and cons of the property you are considering and keep your analytical head on when making this important decision.