Buying your first investment property is a big deal. It may appear to be easy but the fact is, property investing isn’t that simple. While anyone can sign their name on a contract after scouring the Internet and inspecting selected properties, it hardly equates a good purchase or investment decision.
For first time property investors and buyers, there are many potholes along the way, not because of what they assume they know, but because of what they don’t know. Real estate transactions are rooted in many complexities, and not engaging a professional means an increasing risk with each step forward and a possible loss of tens of thousands of dollars.
So if you’re on the brink of buying an investment property and you’re on a solo mission, here’s a crash course on what you should know before signing off with a flourish.
1. Most of the so-called free advice provided to investors in Australia is by sales agents, project marketers, property spruikers.
Even accountants, financial planners, mortgage brokers and lawyers have their fingers in the massive sales commission pie! These people represent their vendor in the property transaction and will never give you independent or unbiased advice. Any “free” advice or strategy will always tie back to a property they are trying to sell regardless of whether it’s appropriate for you or if it’s a good investment. The best way to protect yourself is to ask a LOT of questions on how they earn their money and what information they aren’t giving you.
2. Understand your personal risk profile and that of any property you’re eyeing.
Risk is the extent to which you are willing to expose yourself to loss in return for a particular level of gain.
Many investors attend seminars or read books and get excited about various investment strategies – some of them being quite complex. Often these strategies are dumbed down by those who are marketing the concepts or services to make it look simple. If you don’t know your personal risk profile, you could find yourself involved in a strategy or property that may totally clash to your level of risk. For example, if you have a low risk profile, then buying property off the plan (high risk) or buying a site to develop (very high risk) would be inappropriate and highly stressful. This can result in you not sleeping at night so always keep your risk profile in mind when considering a property or strategy.
3. Know how much debt you can handle.
Now we get to the experts who can help you. Before looking at any property, you need to understand how much money you can borrow and how much debt you can service. This is where a mortgage broker comes in. They have access to enough lenders to secure the best product to suit your needs and can determine your borrowing capacity. Make sure you find someone who specialises in loan structuring for investors.
Also ensure you have spoken to your accountant and/or financial planner beforehand. Depending on your age, income, marital status and investment strategy, they can help you with tax planning and information regarding investing in Self-Managed Super Funds (SMSF’s) if that is an appropriate structure for your personal circumstances.