Investment in real property, such as residential real estate, is likely to be a process requiring great consideration and thought, and one that usually involves a plan for the long term. To ensure you have considered what is required before making the big purchase, we’ve outlined a few steps you might want to take in that process.
1. Make the commitment
A property investment must be a long term commitment in order for it to be worthwhile, so the very first step is to ‘do the numbers’ in order to evaluate your budget, potential constraints and future financial and personal obligations including the potential impact on family members.
“Consider your future as far ahead as you can,” said one of my industry colleagues. “You need to assess your ability to maintain or improve personal income as well as your commitment and ongoing financial capability to continue to service the financial impact of the investment for a minimum of five to ten years, as that’s what generally brings premium results.” You need to also make the commitment to ‘manage’ the investment – even if you outsource the day-to-day tasks involved including locating suitable tenants, collecting rents, paying relevant costs in rates and taxes as well as ensuring that the property’s repairs and maintenance are kept up to date. In short, make sure you have a great property manager!
2. Obtain Professional advice
You now need to obtain professional advice. An investment in real estate is likely to be significant in relation to your current financial position. If you have already discussed the investment with a licensed financial planner or investment adviser and residential real estate is considered the most appropriate in your current circumstances, you will have considered aspects including rental return, maximum capital growth and/or tax effectiveness.
3. Get help with finding that right property if you need it!
You next need to locate a suitable property. There are buyers agents now available who can assist you in this process – potentially saving you money by disregarding inappropriate properties and concentrating on those that are more likely to deliver the highest return and capital increase to you over time.
A good buyers agent will negotiate with the agent on your behalf (who doesn't love that!), as well as terms, and assist with final inspections and the like.
4. Consider the equity you will contribute
Following that, unless you have cash or other investments that can be converted to cash to make your property investment, the next step is to contact a mortgage broker to help you to secure finance to enable purchase.
This will give you the opportunity to ask the broker as many questions needed to alleviate any uncertainty you may have about securing that finance, and make sure that the proposal is balanced, and suitable to your needs, along with making sure that your finances are in order to support the proposal.
5. Have your team sorted!
Using the services of a mortgage broker, accountant, financial planner, solicitor/conveyancer and property manager on your team will also assist you in coming to your decision, and to make sure the decision, is a good one for the longer term.
And, if you don't know where to start with this, we do, reach out!
6. Assistance from relatives & friends
Talking to friends, family and acquaintances who have already made such an investment, or are currently considering one, can help your awareness of stumbling blocks and potential issues that you might otherwise miss. While any issues you face may seem new, it can help to bounce these off a trusted friend or relative who has been there before.
7. Collate your information
In order to apply for finance, you will need proof of your current income, employment and your assets as well as all liabilities including debts, loans, rental payment, outstanding credit card obligations and any other due payments, for example, buy now pay later commitments. Collate these and also any paperwork that helps support your personal position. For example, if you have been a long-term tenant, get a 12-month tenancy statement that proves your capacity to make regular repayments. Before applying for a loan, minimise your current debt load, and if possible, reduce the limit on, or cancel any credit cards you have, as this is perceived by lenders as potential for debt.
It is strongly recommended that you have a fully assessed pre-approval before you start your search. This will allow you to know what your financial limits are so that you can make an offer when you’ve found a property you like.
8. Other things to consider
An investment property purchase should not be an emotional decision. It is a business decision. Consider the property's appeal to the type of individual who wants to reside in the area, and speak to a reputable property manager to find out what kind of properties are the most sought after, and accordingly rental yield the greatest results in the area you are looking for.
Interested to know more? Feel free to reach out, book a meeting and let's chat (because I am home all the time... and I miss people, any excuse will do!)
Rachael Bland – Founder & CEO