If you’re thinking you should get into the investing game, there’s a lot you need to know and find out about. It’s not easy, but it can be very rewarding — if you go about it the right way. Knowing how to do that though can be quite difficult, especially if you haven’t ever invested in property before. Fortunately, other people have gone where you are now thinking of treading, so learning about the in and outs of property investment isn’t as hard as it could be (imagine if you had to learn by trial and error! The lost money hurts us to think about).
Here are five things investors wish they knew before entering the housing market:
In Australia, there are a couple of different investment ‘strategies’ that you can decide to use when you buy an investment property, in order to help you earn money in a way that best suits your lifestyle. Investors can choose between:
These are just the most common — many investors have their own, mixed strategies — but it’s important to keep in mind that you should choose something that you believe will suit your lifestyle now and for years to come. This may mean that you choose to buy a property that you can rent out now, but will potentially sell on to a developer in the future because you know there is interest in redeveloping the area. It’s for this reason that doing your research is important: ask around, talk to other investors, read about the steps other people have taken. There is no easy answer to this question, and your choices may vary depending on a number of factors, including where you are looking to invest and where you live.
Having a realistic view of your budget is extremely important. If you don’t have a true grasp of just how much you can afford to borrow — and therefore spend — you could put yourself in a financial position you don’t want to be in. 14.2% of investors wish they had this more realistic view for that reason. But there are other, subtler reasons some buyers wish they had a more realistic view of their budget. You might set your sights on properties that are out of your budget, leaving you dissatisfied with what you do end up buying. Or if you buy a fixer-upper, and then don’t have the budget to renovate it to your standards, you might end up with a property that can only be rented for a mediocre amount.
More than this though, it is important to have a long-term view of your budget with the investment property — a cash flow analysis. We suggest you start with calculating the repayments you may have to make on a loan, and then start thinking about the ‘operation costs’: how much will you have to pay an agent whilst trying to find renters? And how much can you realistically expect to earn from this investment? This number will always be a little rough as it is difficult to fully predict how the market will move, but you can make an estimate and this will help you determine how your expenses will turn out in the long-term.
After you’ve put in an offer for a new investment property, you might be itching to get in there and renovate (if it needs it) or decorate the place, or a myriad of other things. But other investors (14.6% of them) wish they knew just how long the process would take. If you disregard the time you take looking for the ideal investment property — which, on average, lasts between one and four months — then you might expect the process after you’ve chosen ‘the one’ to move quickly. It does — but in some aspects, it can take a while. Expect the full process of buying an investment property to last somewhere between three and seven months, after you’ve factored in finding your dream investment property, getting a mortgage offer and approval, finding a solicitor, exchanging contracts, and getting the keys. This is, of course, a rough guide: for some, the process is much shorter or longer. Expect that the process is a little longer the first time round though, as you learn the ropes.
20.5% of investors wish they knew about the associated costs that come with entering the investment market. If you’ve previously bought a home, you may be aware of some of these costs: mortgage insurance, stamp duty, etc. However, many people fail to adequately budget for these extra costs, and as such, put themselves in a position where they have to take out further loans, overtax credit cards, or dip into savings funds to cover the difference. This can put people in a position of financial difficulty. It’s always important to keep in mind the associated costs when buying a property for this reason.
You don’t need to purchase a property and own it for life, and many people live in several different homes throughout their lives. Similarly, you don’t need to keep an investment property if you’ve found that it is no longer right for you and your lifestyle. This is why an exit strategy is so important: you ideally want to sell your investment, make a profit, and move on to the next investment property which will suit you better.
Having an exit strategy of some form already prepared when you buy an investment property is a big timesaver down the line. Whilst you can’t plan for everything, and you might not even know when exactly you might want to sell, having a rough idea of what you might do to spruce up the place, which agents you’d like to use to help sell, etc. This can really help you down the line, even if it just saves you time and energy.
There are lots of other things investors wish they’d known, but these are just the top five. What do you wish you had known before you began investing in property? Leave a comment below!