You interviewed several property managers and found one you felt would do a good job at a fair price. It worked for a while, but you’re getting the niggling feeling your property manager is letting you down. So how do you know if your property manager isn’t doing a great job? Just a few of […]
Too many people buy one investment property and then stop. There are several reasons for this. Some make a poor first decision and don’t realise a profit. Others can’t get a loan for a second property. Still others just freeze up and are afraid to build a property portfolio. These 15 tips can help you build and grow your property portfolio.
1: Research your first property
Buying an investment property requires research. Fortunately, everything you need to know is online. You can find prices, learn about rental returns and even rental vacancy rates online. Do your research. Find a good area for an investment property and then start looking. 11 tips for what to look for in an investment property can help you make a good decision.
2: Learn everything you can about property investing
Property investing is a business. Don’t just jump in. Learn everything you can about property investing. Learn from investor mistakes and successes. You can find out a lot online and read books about property investment. How to Grow a Multi-Million Dollar Property Portfolio – in your spare time is now in its tenth year of strong sales.
The author, Michael Yardney, also has a website. His blog, The Top 9 Property Blogs and Websites – Worldwide, lists 9 sites worth visiting. 20 Must-ask Questions for Every Property Investor by Margaret Lomas is geared towards Australian property investors. Published in 2012, it is still enjoying strong sales. You will be in a better position to make the right decisions if you learn first and buy later.
3: Do your sums
There is more to buying property than the cost of the home or apartment. Other costs include bank fees, stamp duty, renovations, insurance and many more. Find out what your upfront costs are going to be. Deduct them from the money you’ve saved for a deposit and you will know how much you can really afford to spend on a property. 20 tips for financing investment properties offers tips about financing and finding the right investment property.
4: Don’t forget ongoing costs
An investment property is going to cost money occasionally. You may need to renovate a property and ongoing repairs will be needed. If you’re working or live at a distance from the property, hiring a property manager is also a good idea. You need to know you can cover these ongoing costs before you purchase an investment property.
5: Compare home loan rates for investment properties
Our article, How to compare home loans and rates for investment properties will give you a good start. You might be surprised to learn that you need to have a 20% deposit for an investment property. Some of that money can come from the equity in your home.
6: Negative or positive gearing?
Most first time property investors are not wealthy. It’s better to find a positively geared property if that applies to you. If your rental return exceeds your outgoings, lenders will be more willing to give you a deposit for a second property. The exception to this rule may be in an area that is experiencing rapid property value growth.
If your finances allow you to negatively gear the property, you may be able to sell the property later and use the money to purchase a second or even two investment properties.
7: Have a strategy
Property investment is not a short term proposition. You will build a property portfolio slowly. If you have a plan in place, you will have more confidence and a clearer understanding of what you need to do. Rather than just discuss a strategy, write it down and amend it as necessary. Having a clear plan is better than having a vague plan.
8: Be adaptable
Your strategy should not be a point-by-point strategy that does not allow for contingencies. Property values rise and fall and your own circumstances may change. You need to be adaptable when purchasing an investment property. Should you hang on to the property or sell? It will depend on the circumstances. Have a strategy, but also leave room for changing circumstances.
9: Take the plunge
If you are confident about the property you’ve chosen and feel you can meet the ongoing costs, it’s time to take the plunge and make your first property investment. If you’ve done your research and found a property that will increase in value over time and offers a positive return, you could be on your way to building an investment property portfolio.
10: Maximise your rental return
The best ways to maximise your rental return outlines seven ways to maximise your rental return. Renovating a property is a good way to attract good tenants who will pay more for the property. If a tenant moves out, clean the property thoroughly to attract tenants who will take care of the property and pay higher rents.
11: Reassess your position
After you’ve purchased an investment property, wait and see what happens over a year or two. Are you still managing to make ongoing payments? Is the property increasing in value? You may have to make a few sacrifices in the short term, but it can be worth it over time.
You have an investment strategy, but it should also be adaptable to circumstances. Reassess your position occasionally and make decisions based on your financial position and the value of the investment property.
12: Is it time to sell?
An investment property is not like a family home. It’s an investment and should be viewed as such. Did you purchase a property that needed renovations? If so, you might be surprised by how much those renovations added to the value of the home.
How much can you sell the property for? Is it enough to afford to purchase a better property or perhaps two investment properties? If so, it might be time to sell. You may not be getting the rental return you expected. If that’s the case, learn from the situation, sell the property and look for another one.
13: Is it time to renovate?
You may have a perfectly good property, but aren’t getting the rental return you expected. You may need to make an investment in renovations between tenants. This doesn’t have to be a major expense. Paint the exterior and interior of the house. Tidy up the yards. Fix fences where needed, get new curtains and replace worn out flyscreens.
Make the house or apartment look bright and cheerful and you’ll attract bright and cheerful tenants. Tenants look at the cosmetic appearance of the home first. If they like what they see, they will pay more. You also attract long term, reliable tenants if the property is renovated and looks tidy.
14: Time to invest in another property?
Hands on property investment is the best way to learn. Many people let fear prevent them from investing in a second property. Don’t let fear hold you back. Analyse your financial position and talk to your lender about investing in a second property. You’ve learned a lot from your initial purchase. The next time you purchase a property, you’ll know more and make an even wiser purchase.
15: Keep moving forward
Successful property investors often have four or five properties and make a substantial passive income from them. It’s not a pie-in-the-sky dream if you’ve done your homework and made good property investment choices. There are many stories about investors who started with nothing and built a property portfolio almost from scratch.
Buying your first investment property is a learning experience. If you’ve gotten over the hurdle of buying a second property, it may be time to assess your financial situation and invest in other properties.