Thinking about investing in property is easy, but the doing is a whole other story. Some of us procrastinate for years, waiting for the perfect time to buy into the property cycle. Others feel nervous about how to start or what investment strategy to use.
It doesn't help that there are countless conflicting opinions about the best way to achieve success in property investment. For every blog, video, seminar or webinar recommending one method, there’s an equal number advocating the opposite.
To help you cut through the noise and make effective decisions, follow these common-sense tips.
1. Learn from a credible source
Surround yourself with independent and unbiased professionals.
Be careful who you learn from because it's not always easy to separate truth from hype, especially when presented with glossy brochures and convincing sales pitches. Ask yourself these questions to assess the credibility and quality of advice from a property investment advisor: what will they get out of helping me? Is the deal too good to be true?
Be wary of advisors who have vested interests in the properties they recommend and be sceptical of advice that sounds like a quick fix path to wealth.
Trusted and reliable buyers’ agents, mortgage brokers and investment advisers should take the lead in helping you achieve your goals but not push you into a decision that isn't in your best interests.
2. Formulate a plan
Know the reasons for buying the investment property as this will influence all your property purchasing decisions.
A carefully considered plan that steps you through your investment journey will enable you to work back from where you want to end up. Do you want to buy and sell quickly for a short-term profit, for example? Or will you own the property for years and wait for capital growth while paying off your mortgage and achieving positive rental return?
Working out how long you want to hold property to achieve your goals will help colour your decision about the type of property to buy.
3. Lead with your head
Let your head, not your heart, have the final say when buying an investment property. It's tempting to allow your emotions to get the upper hand when you purchase a home to live in, but an investment property requires an analytical approach. Keep your thoughts focused on the big picture: Will its location attract tenants? Can I add value by making some simple changes to sell this property at a higher price?
4. Assess your borrowing capacity
Be prepared to show your mortgage lender evidence that you can earn enough income to cover all the costs involved with acquiring and holding property on top of the cost of living.
Circumstances change, and your finances need to be ready to deal with an unexpected blow like losing your job, a period of rental vacancy or an interest rate increase. Building a safety buffer in the form of three to six months’ worth of repayments and living expenses is vital for protecting against financial stress.
Ask your Yellow Brick Road mortgage broker for help with assessing and understanding your borrowing capacity. A large bank balance is not a prerequisite for affording an investment property provided your cash flow and/or equity meets acceptable lending standards. A knowledgeable mortgage broker can help you find the best way to fund your investment purchase <link to blog from June YBR consumer enews: “What to know about financing your investment property”>, as well as structure your loan to suit your financing needs and investment goals.
5. Jump in
They’ll always be reasons for why you shouldn’t invest: too risky, too expensive, slowing economy. Rather than waiting around for the perfect time, use affordability as your criteria – if you can afford to invest and you know what you’re getting yourself into financially, then don't let fear hold you back.
The low-interest rate environment has reduced home loan repayments and made borrowing more affordable, so the longer you hold off, the more wealth creation opportunities you potentially miss.