Many people fail to learn from others experiences and lessons learnt from property buying and investment. Throughout my property investment journey, I have learnt many lessons over the past 15 years and continue to learn from others who have made mistakes and from others successes.
Whilst there are multiple investment strategies to consider many first-time property investors fail to surround themselves with property experts who have learnt from their mistakes.
When commencing your property journey, seeking advice can sometimes be seen as an additional cost however, at the risk of making the wrong decision, paying for insight can benefit immensely in the long term.
Lesson 1 – Be clear on your investment strategy
Not having a clear investment strategy can lead you blind in the property market. It’s important to understand what strategy will work best for you now and also in the future and what the associated risks there may be.
Some of the strategies could include but not limited to:
- Buy and Hold – This strategy usually refers to acquiring a property with the goal of generating long term capital growth.
- Negative Gearing- This is when usually a property investments annual expenses exceed the rental income and results in a loss, which at present under Australian tax laws, can be claimed as a deduction against the investor’s taxable income.
- Positive Cashflow- are properties that put cash back into investors after depreciation has been as a result of having a compliant depreciation schedule drawn up by a quantity surveyor or when there is a positive cash return on the property. This could be due to the property being purchased under market or being in a high yield area.
- Renovating to sell – Is usually a short term investment (flipping) allowing you to maximise equity in the home purchase and renovating to make a return on investment after resale.
- Others may include renovate and hold, adding additional value such as granny flat and also property development
Lesson 2 – Don’t make an emotional purchase
As a first-time homebuyer or investor it is easy to buy with an emotional mindset and not consider factors that influence your purchase. It’s not just your own emotions you need to be aware of, but those of other buyers too. The Commonwealth Bank conducted a survey of Australian buyers and found 44 per cent paid more for a property because they “really liked it.
- Gain a good understanding of the location i.e visit councils, drive the streets, talk to locals to get a good understanding of the area.
- Consider external emotional influencers as to why you want to make the purchase i.e is the house it close by? Do you want to move it the property in the long term? Do you like the look of the property?
- Always consider engaging an expert to do the negotiations so that sales agents don’t pick up on your emotions and the reason as to why you want to buy. This can have a huge impact on the price you may pay for the property.
Lesson 3 – Choose the right property
Not all properties are good investment properties. Choosing the right property can have substantial impacts on both your short term and long-term investment goals. I’ve personally seen property buyers be influenced by buying property in some areas where little research has occurred, with limited information about growth and infrastructure factors and being influenced by the promotion of new development, negative gearing and positive cash flow, they actually made a loss on the property when needing to sell 12 months down the track.
- Understand the value of the property and look at comparative data and potential growth factors
- Consider where the property cycle is at this may also influence your timing of your purchase
- Understand that each state is different and will have differing property cycles due to differing circumstances so don’t rule out other states
- Always consider long term considerations. i.e growth in the area, rental vacancies other associated costs to hold the property
- Always seek advice of other professionals other than a real estate agent
- Remember a real estate agent whilst is helpful and has a good understanding of the value of property is legally contracted to sell the property for vendor, getting them the highest price possible.