03 Feb How does property investment work?
Treat your step into property investment, as you would any other potential business. Again with a strategy, and make sure you are making decisions based on solid business principles, and not emotional drivers. Remember, you are not purchasing your own home but rather a vehicle for you and your family to achieve your long-term financial goals. Your investment strategy should include key metrics, budgets, and a robust exit strategy – one that can be initiated in the case of a worst-case scenario. Consider whether you are purchasing the property for long-term capital gain, or if you’ll be renovating and offloading the property quickly; neither is right or wrong, however, the type of property you purchase will be dictated by your goals.
If you are buying a property for long-term capital gain, and plan on renting it out you should consider the motivations of a renter, the local rental market and you should also build an additional costs that a landlord must allow for – upkeep, potential damage to property, potential time without a tenant, and council rates. Your plan should also include the type of tenant you’ll be targeting, and the reasons they would take your property over another one. If those reasons are compelling enough, you can command a higher rent, and increase the likelihood of long-term tenancy.
If your goals are shorter term, and you will be offloading the property within the near future, you should budget in an intrusive building inspection to ensure your assumptions about the changes you plan to make are correct. Understanding potential challenges before they arise is crucial and the cornerstone of any development project. Remember also, when calculating your potential earnings to include all costs, your labour, other people’s, hard costs and mortgage repayments that will have to be made while you are conducting renovations.
Through the creation of a robust strategy, you remove the emotional element – purchasing a property because you like it rather than for its more tangible, measurable attributes. Many property investors will attest to buying a property which didn’t pay off because they had no plan, and fell in love with the wrong house.