Before spending your Saturdays traipsing from one property to the next it's important to have done your homework and have a clear plan of attack. Putting some thought into these Golden Rules will help to make better use of your Saturdays and have you acquiring an investment property much faster.
1. Pay The Right Price
It pays to know the complete sales history of all the units in a block of apartments or similar houses in the neighborhood before buying. These days that information is easy to find. Some websites can give you comparable sales that were once only available to valuers. Now they can be accessed for anyone, at a fairly reasonable price. So knowing the worth or comparable value is key.
2. Infrastructure and Transport
Being ahead of the game in terms of future infrastructure can certainly put you ahead of the curve. There are many websites these days that focus on finding you the next area slated for the public transport investment or increase in data speeds etc.
3. Add Value
Buying a property where you can add value has always been a pretty safe bet. Again, it’s a simple tip, but some of the best returns I see are clients who do a simple makeover to a property. New kitchen, new blinds, new carpet, new appliances and bingo – after spending $25,000, their property has gone up $50,000 in value and their rent has increased to boot.
4. Have a Strategy
Have someone look at your current financial situation and your goals, and work together to ensure a sound strategy is in place. You need to work out what the most appropriate structure to buy this property is and why? Depending on your phase of life, it may be that a self-managed super fund is the best way to purchase a property while in other circumstances it could be that owning property personally will be of more benefit. The decision-making should also consider any applicable tax implications. I can’t stress the importance of this. Once you buy a property in a certain entity it’s pretty hard to change without significant costs.
5. Do the Numbers
You should have a good understanding of the financial impact of any property transaction before you enter into it. Do you know how stamp duty is calculated on your investment property? What are the effects of claiming depreciation when you sell? How are the selling fees treated? These are tricky questions but you need to know the answers before buying an investment property.
6. Don't Believe the Hype
Property doesn’t always go up in value. That’s one of the most often touted lies. Sure – if you’re not forced to sell in a downturn, then you can always hang on and claw your way back, but that isn’t the case for everyone. Some banks will lend up to 95% for property investment, and if you can get into a property with a 5% deposit all it takes is for that property to go up 5% for you to double your money. BUT, if it goes down by 5% you’ve already lost your equity. This excludes all exit and entry costs – which would make the situation worse. Sadly, this is where most investors don’t do the math.