There are many things to consider when buying an investment property. Do it right, and you can get a strong return through passive income, tax breaks, and equity gains.
If this is your first time venturing into the world of investment properties, or you are a seasoned investor, it’s absolutely normal to feel a bit overwhelmed by the process. And why wouldn’t you be? There is a lot to consider, and a lot on the line, too. So make sure that you to go in with a clear head and a strong understanding of what makes a good purchase.
Now to ensure you feel this clear headed, calm confidence when buying an investment property, we’ve put together this quick guide of the major factors that you need to consider.
1. Location, Location, Location
Think about it, in the context of an investment property. What good is a stunning vacation home if it’s located somewhere that people don’t tend to visit.
Think location first, and property second. It might seem backwards but the “right” property in the wrong location isn’t likely to be the right property at all.
You really need to research what area you want to buy in to find out if it will be a good investment.
Always try to choose an area based on the growth potential and what you’re going to achieve financially.
2. Cash Flow is always king!
Investing in property is a proven path to long-term wealth, however you should consider it a medium to longer term type of investment.
There are many different things that you need to pay like taxes, insurance, maintenance, mortgage so you really do need to do an analysis. Work out all of your income versus all of your expenses and how much it’s likely to cost you per week, per month or per year.
3. Fixed and Variable Expenses
An investment property is not a one off purchase. There are expenses inherent in maintaining any property that are both fixed and variable.
Fixed costs are property taxes, homeowner’s insurance, council charges, property management expenses (if applicable) general upkeep costs.
Variable expenses are harder to predict, but make sure that you keep a buffer in the budget for unexpected repair costs, such as needing to replace the water heater or fixing a roof after a bad storm.
And while it’s not always possible to anticipate these expenses with complete accuracy, you’ll still need to budget appropriately and make sure that you won’t end up struggling at the end of the year.
4. Property Management
Some real estate investors choose to engage directly with their renters by serving as landlords or otherwise personally overseeing day-to-day operations, while others pay a management company to do that sort of work for them.
Keep in mind that while hiring a property management service is a considerable expense, it’s not necessarily more expensive than doing things on your own. In fact, it might even be more cost effective.
The good news is that the cost you pay to your managing agent is usually a percentage of the rent paid, is deducted from the rent and is tax deductible
5. Know the Risks & Market Dynamics
As with all things in real estate, buying an investment property is not without its risks. And it’s crucial that you know what these risks are. You might not have the rental interest that you anticipate, property taxes could go up, local market economy could change.
No investment is ever a guarantee; you just need to make sure you’re not blindsided if something does go wrong and that you have some flexibility worked in to your finances.
6. Do you have an exit strategy?
To have an exit strategy means you can get out of a property while still making a profit and continue to invest. Because you don’t need to purchase a property and own it for life you may decide to sell after a certain point in order to access your money.
Working out what your exit strategy is going to be before you even purchase an investment property can really help you down the line.
An investment property can be one of the most fruitful purchases that you ever make. Work with an experienced advisor who can help you navigate the process and make the best purchase possible.
At Euphoria Loans we can help you find the best loan tailored for you from a panel of over 30 lenders and ensure that the investment you make is a smart one.
Call us now on 02 8321 8895 for a no obligation consultation to explore the options available to you.