A Guide to Buying your First Investment Property

Buying your first investment property is a complex financial decision, one which requires a lot of research and planning. To help you along the process, here are seven tips that will help you organise your research and help you purchase an investment property that grows into a solid investment.

What is an investment property?

7 investment property tips for beginners

Choose your investment goal

Starting the process of buying an investment property without a specific goal in mind is like planning a holiday without a destination in mind.

Ask yourself: What do you really want from an investment property? Are you looking to gain a steady income source from rent? Or are you hoping the value of the property will rise, allowing you to sell at a profit and make a capital gain? Your strategy could even be a combination of the two.

If you're planning on being a landlord, then you have to understand the obligations involved.

• The property will require maintenance over time (which will be an added expense)

• You will need to insure the property (an added expense)

• You will have added expenses which can include the likes of:

  • water rates

  • council rates

  • strata fees

• You may need the services of a real estate agent or property manager the help you manage the property

• Tenants (finding suitable tenants, collecting rent and managing communications), and organising general maintenance

If you're hoping to make a capital gain, then you need to understand the risks involved if the market takes a turn for the worse. There are also come costs that you may not have considered when it comes to selling your property (real estate commission, conveyancing fees, stamp duty etc.) as well as capital gains tax that could eat into your overall profits. This is why it's best to seek independent financial and/or accounting advice before your purchase an investment property.

Planning your Investment: Budgeting for Upfront Costs and Ongoing expenses

Before making an investment in property, it's important to determine what you want to achieve and how much you can afford to spend. Begin by calculating your upfront costs, including the deposit and any associated fees.

Once you have an idea of how much you can borrow, you can then assess how much you can afford to spend on maintaining and managing your investment property. Consider researching different areas and property prices, as well as ongoing expenses such as council rates, water rates, and strata fees. This information will help you determine how much you're willing to invest and give you a head start on your research.

By budgeting for both upfront costs and ongoing expenses, you can ensure that you're making a sound investment and are prepared for the financial responsibilities of owning a property.

The Importance of Research for Property Investors

Research is a crucial element of successful property investment. It's important to examine broad market trends in cities and suburbs, as well as specific types of properties. Understanding the level of supply and demand in the areas you're interested in buying in is key.

When conducting research, consider the following data points:

• Vacancy rates and rental yields: This can indicate how popular a suburb is with renters and whether demand for property is greater than supply.

• Days on market: This provides insight into how long it could take to sell a property in a particular suburb.

• Recent and past property sales: This information is essential for gaining a realistic understanding of current prices in the area and how they have changed over time.

• Auction clearance rates: A high auction clearance rate in a suburb suggests strong demand for properties.

By examining these data points and conducting thorough research, you can make informed decisions and increase your chances of success in the property investment market.

Looking at future developments help guide you toward locations that will likely be desirable in the future. Things that can help improve demand include:

• Transportation

• Community organisations (childcare, schools etc.)

• Shopping centres

• Restaurants or cafes

• Entertainment facilities (parks, public pools, skate parks etc.)

• Community events

Ground Research

There's no substitute for on the ground research. Once you have some idea of what you're looking for, go and explore suburbs, attend as many inspections as you can, talk to real estate agents and attend a few auctions.

The more on the ground research you conduct, the more you'll understand the local market and ascertain what's a fair price for a property - and what's a rip off.

Be logical, not emotional

When you're getting ready to make a decision, make sure you keep your emotions in check. Purchasing an investment property is different to purchasing a home for yourself to live in. Keep all your data and research in mind and purchase a property that suits your investment strategy and not your personal tastes.

That's not to say you should ignore your gut instincts completely. But it's wise to let your research guide your decision.

Secure finance

It would be a shame to go through all the hard work of researching and finding the perfect investment property only to fail to secure finance. Unless you can pay for the whole property upfront, you will need to get an investment loan to fund your purchase. A good place to start is to work out your borrowing power and how much a lender will lend you.

Contact the experts

You don't have to go through the buying process alone, you can ask the experts for help. You will need to talk to real estate agents, and while they're working in the interest of the seller, they are still valuable sources of information. You'll likely want a good agent to manage the property for you too. Speaking to an accountant or property tax specialist will really help you get the most of your investment strategy and make sure you're doing everything by the book. Independent financial advice is always a good idea when considering making a significant financial investment.

Finally, there's a buyer's agents who can help you find a suitable investment property. A good buyer's agent will recommend properties, help you to avoid paying too much and can handle auctions and price negotiations.

Researching and buying your first investment property will be a challenging and often difficult process. But if you plan carefully and take it step by step, it will become much more manageable. And you'll hopefully make a better decision in the end.

^* You have to be a Qantas Frequent Flyer member to apply for the Qantas Home Loan. This information has been prepared without considering your objectives, financial situation or needs. You should consider your circumstances before acting on this information.