Investing in property is probably the most popular way to invest in Australia, but there are some ‘golden rules’ to follow when buying an investment property.
Before we jump into those rules, you need to look at the investment and decide if you have a short-term focus for the property or a long-term one. A short-term focus would likely mean that you would purchase it, renovate it and sell it as fast as possible – making the biggest profit possible in the shortest amount of time. A long-term perspective means that you would purchase the property to hold it, possibly add some upgrades, then rent it out for the highest rent possible.
Set your rules and know the market
That means know what sort of properties you are after and how this fits into your overall strategy – apartments, 3-bed dwellings, or commercial properties. Once you know what you are looking for, understand the market you are buying in. Are you buying in the heart of Melbourne? Or are you buying in rural Victoria? These are very different markets and you will need to understand the market before committing to purchasing an investment property.
Location, location, location
I’m sure everyone knows this rule – you should purchase the worst house in the best street. If you nail the right location then renting out the property (or selling it) will be relatively easy. Alternatively, buy the best house on the worst street and no now will want to live there nor buy it.
How much do you expect to make?
What is your minimum acceptable yield? Most investors are aiming for an annual yield of 10%. It can be tricky to find a property with a 10% yield, but shrewd money handling and a good eye, should get pretty close. Calculate yield by multiplying the weekly rental income by 52 and dividing the sum with the property price (include renovation costs in this figure). If you can’t reach that 10% figure would a mix of a lower yield and high capital gains be a good compromise?
Find the bargains
You make money when you buy not when you sell. Which means, find a great bargain and then add value to it. Finding an unloved property that has huge potential is the key. All you need is one of these properties and you will start a property chain, earning you a nice income along the way.
What rules do you follow when it comes to property investing?