It's one thing to decide to purchase an investment property and quite another to locate and buy the ideal one. This is your hard-earned money at stake, so you need to research every aspect thoroughly. Let's take a look at the common mistakes to avoid when buying your very first investment property.
Buy with your heart, not your head.
There's an old cliché "you make your money in property when you buy, not when you sell" – meaning you need to make a considered choice when searching for the perfect investment property.
Remember, buying a first rental property differs vastly from buying your first home. With the latter, you're emotionally attached. The former needs to be all about logic and reason. Run the numbers with your accountant or financial advisor and don't be tempted to overpay. It will eat into your profits and be like a millstone around your neck.
Failing to plan is planning to fail
Benjamin Franklin once said, "If you fail to plan, you are planning to fail". And while we're sure he wasn't referring to purchasing rental properties, the sentiment remains - the absence of proper planning can be detrimental to the success of your investment portfolio.
To avoid purchasing the wrong property, research potential locations carefully and select those close to work opportunities, amenities, public transport and infrastructure. In Newcastle, suburbs located within 20 minutes of the CBD are strong options. Kotara, Islington, Charlestown, Waratah, Wallsend, Tighes Hill and Mayfield areas are both affordable and boast strong growth potential.
Money Matters
People have different goals when it comes to their investment portfolio, so before you embark on your property journey, be clear on yours. Ask yourself, are you looking for a "cash cow"/high rent yield option or a long term capital growth strategy?
A property with good rental yield is one which is positively geared. This occurs when you receive more in rental income from your tenants than what you pay on expenses. Properties with good rental yield also tend to be less expensive to buy than those in areas that promise good long-term capital growth.
The opposite of this is a capital growth strategy. Properties with this are found in areas where demand exceeds supply. These locations are generally close to employment, public transport and infrastructure. Over time, they continue to increase in value, hence capital growth. However, you have to remember properties in these areas will likely cost more to purchase and will return a lower rental yield.
Self-Management will cost you time and money
It's tempting to do what you can to save yourself a few dollars when buying something as expensive as property. But the one place NOT to cut corners is management. It may seem like all you need to do is pop your head in a few times a year and watch the rental income flow into your account, but it's far more involved than that.
You've got to find a tenant you can trust, and you need to do that fast. Otherwise, you have an empty property on your hands, costing you, rather than earning you money. And while you're thinking of saving money, we should warn you, the cheapest property manager is not always the best, either. Never choose an agent based on fees. A good property manager will help you make more money from your investment and remember, the cost of management fees is a tax deduction.
Agencies, such as the Century 21 Newcastle team, will secure you the perfect tenant at the perfect rental price. We're renowned for a record low days-on-market (under 5!), our technological advances and our comprehensive database of clients. In fact, we've been recognised as finalists in the Australia-wide REB Business Awards and the State run REINSW Awards for Property Management Team of the Year.
So, when you do find that perfect property, talk to a property manager first and obtain an unbiased rental appraisal through an independent agent (not the selling agent). Century 21 Newcastle has a wealth of experience in superior property management and are here to help. You can use our agency as a sounding board, discuss demand in the area you are purchasing, median rents and the type of tenant you would expect to lease the property.
If you'd like to know more, contact us today on casey.novocastrian@century21.com.au or 02 4928 7400. We're on hand to make your path towards investment property success as stress-free as possible.