Buying an investment property is one of the biggest decisions that you could ever make. Short of deciding to become a parent, it has long term ramifications that far outreach the simple act of signing a contract. Often, it can be a harder decision than buying your own home because you only get financial benefit from it compared to your own home with is both financial and physical.
The reasons why people buy into the property market as an investment are many and varied, however typically there is one common ground and that is to make money. Sometimes it’s part of a long term plan, on other occasions it may be in reaction to something such as a friend or relative doing the same, or in response to some marketing.
The longer planned an investment property, typically the better the result – however that planning should also be accompanied by thought and due diligence. Often, people send months going to open houses to find their own home, yet will buy the first property presented to them at a seminar – and often without checking to see if property is in fact the right way forward for them.
Typically, you should have a long term financial plan – with various assets, including property, being part of it. It should consider cash flow, tax, your time frame (always allow sufficient time, say – 10 years) and your expectations. How much risk do you want to take? Do you have any experience in investing? Who can help you? There are a lot of questions you should be asking, and a lot of answers you should be getting if you’re going to spend hundreds of thousands on an investment. A few take points to keep in mind:
- Don’t automatically buy near your own neighbourhood. If where you live is going to give you the best rent/growth, fulfils your need from a tax perspective and is essentially an ideal investment area, you’re lucky. You’ll find, on average, there are better investments away from where you live
- Do you cash flows again, and again, and again. Capital growth will generally come given time, however going broke because you didn’t do you cash flow will negate the long term opportunity because you’ll have to sell before you get a profit
- Take time and get advice, but be careful where that advice comes from. Be aware of how the real estate law works – if the person you’re talking to has the property you’re considering under an agency agreement, they are an agent for the vendor – not you.
- Have finance approved before you buy and if buying off the plan, be sure about the risks that you’re taking by not being able to get finance until prior to completion.
- Do your taxes, and don’t forget to claim all the deductions you’re entitled to
The list is not quite endless, however it’s a lot longer than the above. However, it’s a good start. If you’re thinking of getting into investment property, plan ahead – even 5 years in advance is great. If you fail to plan, you’re planning to fail.