The most successful people know that to achieve their goals, they must have a strategy in place. Being a landlord is no exception. If you want to achieve your investing goals, whether that’s owning one property or 5, start with the big picture plan and break it down into annual, monthly and weekly tasks.
If you are new to property investing, you may need to connect with an expert and employ the services of a property investment strategist to help you.
A good property investment advisor will be unbiased. They will not be trying to sell you something. They will give you honest feedback, and develop a strategy that is aligned with your financial goals, your risk profile and also aligned with your current bank balance.
Here are a few things to think about that will help you determine who will be the best fit for your needs.
Most advisors probably have their own investments so start by asking them about their track record. Find out when and how they started, what they like to invest in, how many properties they own, what mistakes they made etc. Finding out this information should provide you confidence and encouragement about their abilities.
Having their own investments is not essential, however. Regardless of whether they do this for themselves, you’ll want to see testimonials of other clients they have helped. Do your research and find out what other people have to say about them.
Investment techniques change over time as markets change. Find out how they recommend structuring investments and the techniques they use for maximising equity and cash flow for their clients.
Hiring an advisor is a big step in your investing success. What tips do you have when choosing the person who is the right fit for your unique situation?
Some things don’t change when it comes to choosing the right investment property. Here are some tips for newbie investors:
Buying in the same area you live in is often preferable, especially for a new investor, as it is easier to keep an eye on the property. Driving past the property regularly will help you stay on top of any potential problems. The location of the property is generally more important than whether it is a house or a flat.
Three or four bedroom homes are usually easier to rent and normally have a quicker chance of resale should you need to sell anytime in the future. Double income properties, for example, homes with a granny flat, often offer excellent rental yields. If you lease these at different times, then you won’t be down double income if both are vacant.
Look for properties that have an X factor. Can it be extended? Is it sub-divisible? Is its location superior? Look to the future as to what you could do with the property. Low maintenance cladding materials on the exterior of the home will help to reduce ongoing maintenance costs. Maintenance is not something you should take lightly.
Develop a relationship with your Mortgage Broker and Buyers Agent. They will save you time and money. Speak to them regularly about your future investment plans. Make sure organise your finance before you actually sign the agreement to minimise the conditions applicable. So many people forget to do this. Always keep accurate, complete and tidy tax records. Highly important!
Spread your investments. Target some properties with high yields and low potential for growth, and also target properties with lower yields and a higher potential for growth. A balanced portfolio is always a good idea. Make sure you follow a plan so you know what sort of property you will be buying next and why it will work for you.
Always be nice to your tenants. They will be nice to you in return.And always respond quickly to a tenant request.
Review your rental rates, both up and down, on a regular basis and according to the market. Work with your Property Manager to help you with this. Your property manager will have the market information and experience to help you to make the right decision for your investment.
If you have been thinking about investing for a while, now might be the time to make your move. Investing in property has always been a smart move – when done correctly. There are long-term benefits that can often provide returns that exceed expectations or other investment vehicles. The questions you have to ask yourself are ‘Do I have the money to invest in property’? Or “How can I afford it?”
It is a big decision and our best advice is to talk to as many experts as you can before committing. Your local property manager, realtor, accountant and bank manager will assist you in deciding whether a rental property is the right investment for you.
Create a list of questions and research the answers before jumping online and looking at all the property listings. Here are some questions to get you started:
- Is this a long, short or medium term investment?
- Do you want to manage the property yourself?
- Will you need to make savings in your personal budget to achieve your investment goal?
- What do you want from your investment (freehold family home, retirement, future travel)?
Your Mortgage magazine has a nice online calculator tool to get you started and if you have any questions we are happy to answer get in touch with us. We are more than happy to have a chat about your goals and your specific situation.
What many landlords don’t realise when they buy a rental, is that it is actually a business and requires a lot of time and effort to run effectively. Many people think they can just buy a rental and watch the money roll in but it takes a lot more than that, and one thing you really have to keep track of, if you want to be successful, is your finances.
Managing the finances for your investment property business shouldn’t be an afterthought. It should be a core part of your strategy. It is important to plan ahead and always have money set aside for unexpected expenses that may pop up. Try forecasting for 6 months and then adjust your plan if necessary.
1. Have a Separate Account
Like all businesses, you should try to keep your personal expenses separate from your business ones. It makes it much easier to organise come tax season. Open another account with your bank, or even a different bank, to ensure your finances are kept entirely separate.
2. Track Expenses
Keep a record of all your expenses relating to your rental. This can include things like: Advertising to find a tenant, repairs, maintenance, rates, insurance and hiring a property manager. You can create a simple spreadsheet for this or use an accounting software. Remember to keep all of your receipts too.
3. Manage your Income
The best way to collect rent is by automatic payment. The same amount on the same day of the week or month makes it easy to keep track of. You have a digital footprint of every dollar you receive and you know instantly if a payment is late. When you are in business, you are there to make money and owning rental properties is no different. You need to know exactly what income you have received.
4. Hire an Accountant
While you may be able to handle your finances yourself, is it always a good idea to get an accountant to look over things too. They can deal with the taxes and deducible expenses. You may be able to claim things you never even thought of. Hiring an accountant is a good idea if you have multiple income streams.
How have you organised the finances for your investment property business? What else can you add to this list?
Lack of funds is probably the biggest factor preventing hopeful property investors from entering the market. However, there are ways you can get on the investment property ladder without any money.
Property investment is a fantastic way to make money – once you get started. It usually requires some initial capital, but it is not impossible without it. Although lenders may view you as a high-risk borrower, there are ways around it.
Start saving straight away. Put as much away as you can in a savings account and try to save at least 10% as a deposit. Showing you having regular payments into your savings account will prove to the bank or lender that you are capable of saving and will increase your chances of being approved.
Look at Current Equity
If you already own the home you live in, you may be able to tap into the equity of that home to fund your investment property. By drawing upon the equity in your existing home, you can buy into your first investment property with a smaller mortgage, and in the eyes of your lender you will have reduced your risk as a borrower.
Investigate Joint Ventures
It is better to own 50% of something than 100% of nothing. Consider investing with a friend or family member to get on the property ladder. It is important to get a co-ownership agreement drawn up to avoid disputes between co-owners. Consider things like setting up a sinking fund to cover repairs and periods when the property is vacant, a plan to pay for unforeseen maintenance costs and how insurance issues will be handled.
Save someone else
Another way to get on the property ladder can be to use your saved deposit to solve someone’s problem in exchange for a portion or the whole of a property. For example, if someone is in trouble paying their current mortgage, if they sell the property now, they are not going to have much money left or even run the risk of losing money. If you offer them a sum to pay for their outstanding debt and take over their mortgage, you could get your hand on a property that otherwise will be out of your reach. This method, although not ideal, allows you to have the control but not ownership, and enjoy all the financial benefit of an investment property.
What other tips can you recommend to help a person get on the property ladder with limited funds?
If you are thinking of getting on the property ladder but are still not ready to take the plunge yet, it may be worth it to consider investing with a friend or family member. Let’s look at some of the pros and cons of investing with another person.
When you invest with a friend you can each save half of the money (or less if you invest with a group of friends) for the deposit. This can help you buy a place much sooner than you would otherwise be able to.
Buying a house is not cheap, and neither are the monthly payments and expenses. Once you have saved all of your money for the deposit, you still have to pay for maintenance, rates, and your mortgage repayments. By sharing with a friend or family member, you don’t have to take on all that stress yourself. This could be especially beneficial if you plan to do some renovations before renting it out.
- Home Equity Gain
Depending on what your goals are, you and your friend may not own property together forever. If you eventually, one day down the road, decide to go your own way you can sell up and split the proceeds. Compared to renting, where you give your notice and move out, if you have been smart with your investment, you will more than likely sell up (or one partner may buy the other out) and take your profits to put a down payment on a new property.
The number one factor that may put people off investing with their friends is the possibility of disagreements. Most people have arguments now and again but, depending on the nature of your friendship, it depends whether you can put your friendship aside when it comes to business decisions. It could be that one partner wants to spend more money on the property than the other, or even arranging maintenance or repairs without first discussing it. When going into a business partnership with anyone, family or friend or even a business acquaintance, it is always a good idea to draw up the necessary contracts and agreements so both parties are aware of who is responsible for what and what and what to do when conflicts arise.
When you have a joint mortgage, everyone is responsible. You may always make your payments every month but if your friend is not good with money, they may fall behind leaving you liable for the payments. The key here is to have good communication lines open at all times and to be upfront about any possible cash-flow problems.
Would you ever invest with a friend?
Are you thinking of getting into property investment? Maybe you already own your own home and want to grow your assets or maybe you are a young person still living at home but want to invest your hard-earned cash into something to something long-term.
What do you have to think about before you even consider investing?
How much do you want to spend?
Before investing in property it’s vital to have a thorough understanding of your cash flow. Make an appointment with your bank, so you know how much you’re able to borrow before you start hunting for properties. It is better to get the loan approved before you start looking so you don’t waste weeks or months of your time searching for the perfect place only to have your loan denied.
Don’t forget about expenses
Make sure you save for rates, insurance and repairs. When you buy your property, do what you can to prevent costly maintenance issues arising such as repairing things straight away when they are minor instead of leaving it until it becomes a big problem.
Do some DIY
Paying contractors to do renovations is expensive. You can save money and increase your profit margin if you can do at least some of the work yourself. If you have any friends or family who are handy with a hammer, get them over to help out.
Remember a rental property only has to be clean and functional. Don’t get distracted and buy a property because it has a stylish interior. It can be very easy to get caught up in emotions. While a home on a steep block may have a stunning view, it could be a nightmare to renovate.
Get a building inspection
Before signing a purchase contract, take the time to understand the building report to avoid expensive repairs down the track. Termites are one potential problem to watch out for.
What other things do first-timers need to be aware of when it comes to investing?