Property investment is known for being a strong and stable investment option. However, it’s also a very large investment, especially when compared to other options such as shares. Plus, if you decide to invest in property, you have to be in it for the long run.
Getting onto the property ladder requires in depth research. However, if you’re looking for a straightforward beginner’s guide to property investment, this is the place to start.
Ask yourself the right questions
The first thing you need to do is get a grasp on what exactly you’re looking for in terms of property investment. You should be able to answer these 5 questions before you move on. Make sure to educate yourself on the implications of each decision and be realistic with what to expect.
- What kind of property – apartment, house or commercial – do I want to buy?
- How much do I have to spend?
- What suburb/s fit my investor profile?
- What income or cash flow can I expect?
- What are the risks involved?
Finding the right investment property
Once you’ve determined your budget and desirable locations, you can start looking for properties that offer the highest potential for capital growth and rental return. Typically, you want to look for properties with access to public transport, public amenities,
Watching the market
Of course, you don’t want to be making any huge decisions before taking the time to watch the market. You can find the latest market updates and region specific investment guides on OpenAgent’s real estate investing section or on other online resources such as realestate.com.au. There are the more obvious indicators to look out for such as:
- Property value
- Days on market (DOM)
- Rental yields
- Auction clearance rates
- Vacancy rates
More seasoned investors will suggest looking for suburbs with:
- Rapid population growth
- Diverse local economy
- Investments in infrastructure
- High median household income
- More demand than supply
You can sign up to OpenAgent’s newsletter for monthly updates on DOM, rental yields, median prices and recent sales at a suburb level. You’ll also get CoreLogic valuation statistics unique to your address and weekly state level auction results.
Deciding on an investment strategy
The majority of the research you do will most likely be in investment strategy. There are 6 common strategies to consider, each with their own advantages and disadvantages.
Negative gearing (capital growth strategy)
Being negatively geared means your property’s annual expenses exceed the rental income you gain. Ideally, you take a short term loss in order to eventually sell for a profit. Negative gearing can have tax advantages since you can reduce your taxable income.
Positive cash flow strategy (rental strategy)
On the flip side, being positively geared means the income from your property covers the expenses. You’ll be able to pay down your loan and increase equity. However, it’s very difficult to find a property where rental income can cover all expenses.
Renovation and house flipping strategy
Renovating a home with the intention of flipping it requires a lot of pre-planning to ensure you can actually turn a profit. It’s important to understand the market and your prospective buyers.
Renovate and hold
The renovate and hold approach involves a well-thought out renovation followed by waiting for capital growth. Similarly to flipping, you’ll need to be careful in making sure that the renovations can actually allow you to make a return on your investment.
Subdivision or constructure
Subdividing a property is a fairly risk-free way of securing a profit. The downside is that there are generally many local council regulations that you need to consider and many different costs.
Co-investment partnerships
Co-investment or joint venture partnerships involve teaming up with one or more other people so that your combined incomes open up more possibilities for an investment loan. However, this option comes with potential complications in regards to trust and tax.
Hopefully this guide offers some insight on the different steps and decisions that need to be made in order to invest in your first property. Though property investment requires a lot of groundwork in the beginning, if done right, you’ll be able to reap the benefits in the long run.
Guest author: James Pointon is a Commercial Manager at OpenAgent.com.au, an online agent comparison website helping Australians to sell, buy and own property.