Property investing checklist

Assess your financial position

The first step to making a successful move into property investing is to know your financial position. Knowing how much you can borrow will set the parameters for your entire property search.

If you already own a property, you can use your existing equity to buy an investment property sooner since you won’t need to save up for the whole deposit. You can still finance an investment property through a deposit, but as with any home purchase, you’ll still need to meet minimum loan value ratios and lending criteria.

It remains the same, that the strength of your loan application will determine how much lenders are willing to loan you. This is completely reflected by showing your ability to repay as a borrower, regardless if you own one property, a hundred properties – or none.

This is why pre-approval can be so important when starting your property investment journey. Know what you have to play with, what your repayments will be and what you have to budget for before you start hunting down that dream asset.

Develop a plan

With a clear picture of what’s available to you, it’s time to think strategy. There are a few tried and true approaches which have helped property investors build wealth across Australia. It starts with being clear on your goals and considering what your cash flow strategy will be.

Negative gearing is easily one of the most popular property investment strategies in Australia. Negative gearing is when the costs of owning a rental property exceeds the rent returns being earnt. This creates a taxable loss, which can usually be offset against any tax liabilities from your ordinary income. This strategy can allow property investors to legitimately claim a tax deduction and use your tax to cover the expenses of holding the property.

Keep in mind, this path is not without risks. You still need to have an income, paying tax to realise the full benefit. However with the right structure and advice, negative gearing can be a very reliable way to build wealth for the long-term.

As with negative gearing, positive gearing is the reverse, where the total rent return covers all the costs of holding the property and also returns a surplus cash flow each month. This approach can potentially allow you to buy multiple investment properties as the surplus cash flow makes you an attractive borrower.

‘Flipping’ houses has been made popular by many reality TV shows, where property investors buy a renovation project, invest in doing it up and sell for a profit. Sounds good on paper but has become increasingly harder to do profitably in reality.

However, one of the most tried and true ways to invest in property and build wealth is a buy and hold approach. This strategy involves buying an established property, preferably in an area that has solid potential for long-term capital growth and sticking with it. This approach is a pretty low-risk, long-term strategy.

It’s also possible to combine some of these strategies (i.e. buy and hold a negatively or positively geared property) but it’s important to remember your goals. Investing in real estate can be primarily focused on capital growth, liquidity remains important in ensuring that the investment can be financed and paid off in time.

Just remember, cash is king and can be the lifeblood which pumps up your investments, or leaves you high and dry. So factor in what suits your situation best.

Do your research

With a clear idea of what you can borrow, what it will cost you, your cashflow expectations and preferred strategy for building wealth, you’re ready to start hunting down that dream asset. The foundations for your research will assess how the property market is performing.

The location of the property will account for about 80% of its performance and it’s the one thing you can do little to influence once the purchase is made. So, if you want to build wealth for the long-term, it’s important to choose well.

Most people choose suburbs or locations they know well and it’s important to understand the local dynamics to help you make the right choice. However, as a property investor you’re now opening up the entire country and the best opportunities might be in locations you’re not familiar with.

If you are looking further afield, it’s a good idea to build a solid relationship with the real estate agents in the targeted suburbs. They may have properties that are sold before they hit the market. Having you on the top of their list will help getting ahead of the competition.

Know your pricing

Whatever strategy you’ve decided on, buying an investment property at the right price is vital to the success of your property investment journey. Working out the right price for a property is not straightforward and requires a bit of legwork. The key is to be patient. There will always be opportunities and you want to make sure you’re ready when the right one comes along.

There are plenty of resources available to help property investors, with varying levels of cost. Websites like CoreLogic and Your Investment Property make it easy to track the performance of a suburb through comprehensive property market data and demographic data.

Also have a conversation with an experienced mortgage expert. At navigators, we are property investors ourselves and know the best approach to ensure you’re making the right moves with every step. Use our experience to help you get the right loan for the right home.

Manage it well

Finding and securing your dream investment property can be a lot of work, but it’s only the beginning. Managing your property well ensures you retain the value you secured but also builds up over time.

This means considering the types of renters you want to attract, making the property enticing to those renters and keeping your asset in tip-top shape over time. A process which takes time, but is worth your effort if you want to build wealth for the long-term.

A reliable and experienced property manager can do the heavy lifting in looking after your investment property. They are able to advise on pricing it correctly, help to ensure good quality tenants are selected hence and remove the hassle of rental collection. They also help ensure that your asset is well maintained. In addition, you do not have to worry about the changing regulations and compliances.

Even better, the fees you pay to your property manager are typically a percentage of rent paid and this can be a tax-deductible expense.