Buying Your First Investment Property

With interest rates remaining at historic lows and rental yields at historic highs, an increasing number of people are considering becoming ‘first time’ property investors.  With soaring house prices, many people have had a substantial equity-boost, simply by way of the market forces, and this increased equity can be borrowed against to invest in another home.  There is also a growing movement of non-homeowners choosing to invest and buy their first investment property before they buy their own home.

If you are considering buying an investment property for the first time, there are a few critical things to understand before you embark on your search.

Firstly, education/knowledge: everyone you talk to has an opinion on the property market whether they’ve got skin in the game or not, so be wary about who you get your advice, there’s a million so-called ‘experts’ out there, but you need to tread very carefully and ensure you seek advice from someone who has proven knowledge and expertise in the area, and does not have a vested interest in recommending a particular property or strategy to you.

Talk to your local real estate professionals – talk to several, not just one, and you’ll get an overall feel for the state of the market you want to buy into.  Hold your cards close to your chest, this is a fact-finding mission, you don’t need to bare your soul.  Also, there are plenty of property blogs, media articles, and podcasts to access also; but once again, it’s important to get this information from a credible source, there are a few cowboys out there sprouting rhetoric that is often misinformed or has a hidden agenda.

The more you research, the more you will know and understand.

Secondly, establish what your strategy is.  What is the motive behind buying an investment property?  Are you planning on just buying one or is this a stepping-stone to building a portfolio?

There are three main investment strategies to consider:

  • Capital growth – which means buying a well-located property that is likely to outperform the averages over time because of strong demand from owner occupiers.
  • Cash flow – which means buying a property that attracts a high weekly rent that will cover more of the costs such as the mortgage repayments and council rates.
  • Renovation – which means buying a property that needs some TLC so that you can on-sell it for a healthy profit, otherwise known as property-flipping.

The most solid strategy is investing for capital growth; cash flow can be tempting, but sometimes these properties never increase in value significantly because they’re new or located in regional areas, so you may lose the opportunity for that attractive capital growth required to get the deposit for your next property and so on.   Property-flipping is not as easy as it looks on the popular lifestyle shows, and often first-time renovators overcapitalise; there can also be high entry and exit costs that impact on any potential profit.

In summary, investing for capital growth is the ideal strategy, but keep in mind to really gain from them you need to hold for the long term to really benefit from significant gain.  Patience pays.  Here at Wright Place we can assist you to find an investment property that will best help you achieve your goals.

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