Do you want to start investing in property? Arming yourself with knowledge is one of the first keys to successful real estate investing.
With The Following 10 Investment Property Tips for Beginners,
We’ve tried to cover the most crucial pitfalls many first-time investors experience.
If you’re new to the game and don’t really know how investment property works, these tips can help you avoid losing a lot of money down the line. So, buckle up, it’s time to explore property investment for beginners.
- Secure Your Down Payment
Investment property works slightly differently to owner-occupied property. For instance, investment properties typically require a larger down payment. This is mainly because mortgage insurance isn’t available on rental properties.
Expect your down payment to be between 20-25% for an investment property. Fortunately, there are ways to increase your capital for investment property with bank loans and opening a Self-Managed Super Fund.
- Find The Right Location
Research, research and research some more. There is nothing worse than purchasing an investment property in a declining neighborhood. Your investment is only going to depreciate over time, so what was the point?
Fortunately, there are numerous resources online highlighting all the important statistics for property investors. You should typically pay attention to the following attributes of any area:
- Property taxes
- Schools
- Leisure amenities (parks and shopping centers)
- Crime rates
- Public transport
- Job market
- Median property prices
- Average weekly rent and rental yield
- Compound growth over the last 5-10 years
- Pay Attention to Interest Rates
Interest rates have taken a dive in 2022, but it’s important to remember one crucial detail:
Interest rates for investment properties are higher than traditional mortgage loans.
How much higher? Interest rates for investment properties are generally between 0.5% and 0.75% higher than standard rates.
According to (mortgagechoice.com.au) the current interest rate for an investment home loan is 2.19%pa to 3.07%pa.
The savviest investors spend a lot of time researching to find low mortgage payments that don’t eat into their savings.
- Look For Low-Maintenance, Low-Cost Homes
Sure, there are investors out there who love flipping houses. However, if you’re a first-time investor with little experience, this is probably not the best idea. Flipping houses takes a lot of work, time and money. It also isn’t a guaranteed win. Those investors also usually have some trades up their sleeve or know people who can provide home improvements for cheap.
Investing in a low-maintenance, low-cost home is one of the best ways to enter the property market. It’s okay if some minor repairs are required. The key word here is minor. Nothing that’s going to break your bank or back.
Keep an eye out for houses selling below the market average, then identify what needs fixing. If the maintenance is within your budget, you might’ve found your next investment.
- Watch The Market
Just because you’ve decided to invest in property today, doesn’t mean you have to buy a house tomorrow. Take your time, find your ideal market and just watch it for a little while. You’ll want to keep your eye on some crucial market data and performance metrics.
Some of the most important are:
- Property Values – Use backdated statistics to see the rise or fall in property value in your target market. Boom suburbs always show significant growth over the last 3-5 years.
- Rental Yields – High percentage rental yields typically indicate a high demand for rental property in that market. For instance, Brisbane’s best suburbs for rental properties usually have rental yields of above 4% for houses and 5% for units.
- Days on Market (DOM) – Research the average DOM for each property sold in your target market. If a lot of properties are selling quickly then the market should be in a state of boom.
- Vacancy Rates – Check the vacancy rates for your market. These indicate how long properties have remained vacant. Low vacancy rates are ideal if you want to invest in a rental property.
- Trust Your Head Over Your Heart
Buying an investment property is very different to buying your future home. One of the big differences is going with your head over your heart.
When you purchase a home, your heart plays a major part in the decision. It is your home for the foreseeable future, after all. However, when you buy an investment property, you need to completely remove all emotion from the transaction and think logically. Emotional buyers typically end up over-capitalising on their purchase and forgetting their investment goals.
One of the best investment property tips for beginners is to always buy property based on research and market analysis.
You need to constantly ask yourself key questions about a potential investment property. Questions like:
“Will it provide considerable rental yield?”
“Will its value rise in a growing area?”
Will it appeal to stable renters?”
Trusting your head over your heart is one of the keys to real estate investing. Don’t lose it in amongst the emotion of buying property.
- Join A Property Investment Group
“How does property investment work?” is one of the first questions any beginner investor asks themselves. The easiest way to answer this question is by joining a property investment group. Surround yourself with experienced property investors and learn from their successes and failures.
Connecting with like-minded individuals is a great way to network and learn more about property investment. Once you’re in the community, you’ll start seeing opportunities to attend seminars, meet-ups and other networking events.
Why not start by registering with Equimax Property Group?
By becoming a member, you’ll unlock the insights of high-performing properties, off-market deals and advice on property investment in Australia.
- Decide Whether To Buy Or Finance
Deciding whether to buy your property outright or finance it comes down to your own investing goals. Buying your property can generate more monthly income as you’re not contributing part of your monthly earnings to a mortgage loan.
However, financing can give a greater return if we’re looking at percentages. For instance, you might put down $20,000-$30,000 on a home and be required to pay back 3.5% on the mortgage. Because you’ve put down less capital initially, you’re still seeing a higher percentage of return despite the mortgage payments.
Ultimately it comes down to how much you’re able to spend at the start. And also your number one goal with your investment property. Is it to generate a high monthly income with little to no debt? Or is it to see a higher percentage of return on your initial investment?
- Get Tax Savvy with An Accountant
If there’s one truth in life, it’s that the most successful investors have the best accountants. Investing in capital growth is the ultimate goal for many investors. However, they also need to maintain healthy cash flow. Getting tax savvy with a knowledgeable accountant can help you achieve this.
When it comes to property investment for beginners, finding the right tax accountant is a crucial step. These money wizards will find every single income tax incentive and deduction available to investors. You’ll be surprised just how many legal deductions and depreciation allowances there are for property investors.
- Be Patient And Scrupulous
Our final investment property tips for beginners are easier said than done. Maintain patience throughout the entire process. Patience is one of the keys to real estate investing. When you’re researching markets and properties, when you’re dealing with agents, when you’re searching for loans: patience.
And don’t forget to be scrupulous in everything you do. These two go hand in hand. If you’re patient, you’ll spend more time going over the numbers and finding opportunities. We promise that you’ll see the difference in your bank account and your investment portfolio.
