Investing in property can be an exciting and profitable venture, but without the right strategy, research and planning, things have the potential to go horribly wrong. In the worst case scenario, you could end up losing more money than you invested and you’re stuck with an asset that continues to impact heavily on your finances.
So where do you even begin? Here are our handy hints which will help you with your future investing ventures.
1. Think long-term
Thinking in the short-term rarely ends in worthwhile profit. Investors have the opportunity to pick up discounted property in the current tough market - but to earn maximum profit, they need to adopt a long-term strategy focusing on the size of the property, location, and the capital growth of the area.
2. Location, Location, Location!
We’ve said it before and we will continue to say it until we are blue in the face - the location of your property is crucial! Plan to buy in a desirable location or one that will become desirable in the near future. In order to ensure you’re buying in the right place, consider things such as changes to public transport networks or upcoming developments in the area that could add extra value to your investment.
It is also important that you do not overlook capital growth - it is much safer to purchase a property in an area with proven capital growth records. Also, make sure you know the location and the appeals of the area. Is it close to amenities, cafes, schools and public transport? All of these factors will make a difference when leasing or selling the property now and in the future.
3. Don’t be fooled by Property “Spruikers”
It is likely you will have heard of property seminars and selling forums being marketed via mainstream media. Hotels and convention centres are often overflowing with seminars trying to sell you the dream of investing in property and retiring early (and rich). However, you should be wary, these programs are not always for your benefit and you could end up losing thousands of dollars if you invest incorrectly. Investors need to tread carefully to avoid being tricked by fake promises of profit. Approach things cautiously, and of course, conduct your own research before signing that dotted line.
4. Do It Yourself (DIY) Renovation jobs? Where you can go wrong…
Many investors buy properties with the intention of renovating them, in order to create greater value and increase buyer attraction. Often, the renovation work will be undertaken by the buyer/owner themselves, and on a relatively small budget. This can become a potentially dangerous venture. There have been countless cases where investors have actually de-valued their property whilst completing DIY renovations without expert advice or assistance. Cutting corners and DIY jobs can often do more harm than good.
5. Think land size and future development potential
Picking a large sized block with the potential for sub-division is a smart, long term investment strategy. It is very likely that the overall value of the space will rise in the future, and, provided you can successfully negotiate sub-division and possible re-development, you can potentially sell for a much higher market price. When buying, always think of the “bigger picture”.
6. Beware of over-committing to negative gearing when purchasing an investment property
Negative gearing is a form of leveraged investment in which an investor borrows money to buy an asset. However, the income generated by that asset may not initially cover the interest or repayments owed on the loan. If the investor over-negative gears, they risk running out of cash-flow. Negative gearing is a sensible way to use your tax dollars to invest but make sure you do not commit to a higher loan to value ratio. Typically, a comfortable limit is between 60 – 70%.