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How to Avoid Costly Mistakes Buying Investment Property?

WOW! Are you thinking this is an exciting time to be a real estate investor and buying investment property?

 

Buying investment property…did you get the raw end of the deal when you’re buying investment property? There are so many steps where factors can go wrong in the buying process. Steps you may be aware, others you may not even see coming until it’s too late…

Property investors usually learn the hard way by trial and error throughout their property investment journey, and of course this more often than not results in poor decision in context to investments underperforming and a lot of lost time, money and energy.

What if you’re prepared to mitigate risks in the first place? Buying investment property, wouldn’t you want to be armed with as much knowledge as practical to avoid pitfalls?

buying investment property
Buying investment property with a focus on successful investment properties in highly sought-after locations

Here are some of the most common buying investment property mistakes encountered by property buyers:

Paying too much because you didn’t what you wanted and how to effectively negotiate. Did you know nine times out of ten, a third party negotiator would be able to achieve lower price and better deal than if the buyer was to go it alone?

There’s so many buying investment property factors which come into play as you’re negotiating a property purchase, it’s often the hidden motivations and emotional process which brings buyers unstuck.

Rushing in and signing the contract…guilty of this in the past? Are you not clear on your goals and expectations? Under pressure or are resources thin? Maybe the sales agent claimed you’d miss out if you stalled?

Would you know what to look for in a contract to ensure you were fully protected legally? Too many buyers jump in and sign contracts too soon before understanding the deal and reviewing all the details.

When buying investment property, are you leaving yourself exposed and wide open? Don’t be fooled by the so called cooling off period because penalties still apply if you change your mind under this clause and of course, the consequences of this mistake will cost you.

Buying investment property, in fact have you bought the wrong type of investment property? Ever left decisions to the last minute because you’re unorganised, busy or unexpected emergencies took your time?

If you rush into making decision you’re bound to overlook and make devastating mistakes, right? Why would you want to get stuck with an investment property you didn’t want because you had to make a fast decision?

buying an investment property with equity
Buying investment property with equity

Buying investment property can be divided into two simple steps:

  1. Allow adequate time
  2. Do your research

In your contract, buying investment property check list, always make sure you allow for building inspection and pest report. If it’s written into the contract, make sure you’ve booked your building inspector, allowing enough time to thoroughly review the report and negotiate the findings?

Did the real estate agent recommend someone or did you find a building inspector independent of their suggestion? Its always a professional courtesy to take on recommendations, however some agents form strategic alliances with inspectors to get sales through.

Buying investment property and running out of time for finance? Losing the property because bank needs more time or contract date has expired, vendor terminates contract and real estate agent sells it to someone else… property lost and you’re back to square one.

Buying investment property in this scenario happens more often than you’d think, however the situation can be avoided with closer attention to how finance is arranged prior to buying investment property, right?

Buying Investment Property

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Why Buy Investment Property?

Before you buy investment property, you could ask yourself a few simple, yet powerful questions.

 

The content is general in nature and it’s important for investors which may be contemplating buying investment property to note further investigation is required in order to identify specific properties for investment potential…

According to Australian Bureau of Statistics (ABS), 97% of people aged 60 or more are in some way reliant on a government pension. In case you don’t know how much a pension is worth, imagine trying to survive on $15k pa (if single) or $24k pa (for a couple).

(a) Debt free family home still doesn’t produce income for utilities, food, transport, hobbies, and holidays

(b) Superannuation will be nowhere near enough to replace the income required to live life on your terms

(c) A “rule of thumb” formula for calculating the size which your investment portfolio (net of all liabilities) needs to be is to multiply the required income stream you want by 20.

For example: Required income (debt free) x 20 = Investment portfolio value (net of liabilities) $80,000 pa x 20 = $1,600,000

(Above figure excludes the value of your family home and does not factor inflation)…

buying investment property
Buying investment property with a focus on successful investment properties in highly sought-after locations

First question, “am I buying investment property or (PPR) principal place of residence? Next, “why would I buy investment property”? The answer to both questions is where to buy and what area(s) you know or feel comfortable?

Buying investment property or principal place of residence in context to if you are going to live there?

Generally speaking, any in market it is important to understand capital growth cycles, (structural change which is occurring) your target market (demographics, right style of property for right location) and population growth.

Key is understanding how the contract does not get in the way of closing deal because the contract must protect the interests of you as the developer and ensure settlement takes place smoothly. Of course, you want the maximum financial return, right?

Investment property has many different purposes, you are wanting to maximise your wealth via property investment so you need to factor your capital, borrowing capacity, lending institutions combined with macro and micro indicators.

Buying investment property involves due diligence with a clear strategy to focus on, which can give you real confidence you are investing based on correct research criterias and more than just a gut feel.

Buying investment property the infrastructure investment: The government and private enterprise spend billions of dollars each year on roads, transport, hospitals, mining, resources etc…

Look at what they are spending funds on and what impact the infrastructure has long term in those areas.

Buying investment property the populatIon growth: The Australian national population growth rate was 1.7% or 394,000 new residents in Dec 2012. Take note of where those people are moving too. Is it a capital cities, regional cities or regional areas? We also look at interstate migration, which is generally associated with employment opportunities or lifestyle choices.

Buying investment property the economy and employment factors: What is the diversity of industry? Consider what business/industry is in the area you are investing in.

Does area have a cross section of industries that can support current and future employment or is it reliant on one main industry?

Buying investment property the supply and demand relationships: Is there an oversupply or undersupply of residential housing? If there is an undersupply you are likely to see increased rental income and improved cash flow for an investor.

In this scenario you will also see a lowering of the vacancy rate. Undersupply could also put pressure on property prices. With an oversupply the opposite normally occurs for an investor. Rents decrease, vacancy rates increase and property price can decline.

Amenities: The better the amenities are the more attractive an area become for people wanting to rent. Look for good employment, schools, shopping centres, medical facilities, sporting facilities and café lifestyle.

Transport is a very important consideration: Look for a combination of good public transport and does it service the area well especially in the exact areas you are looking to invest in?

Buying investment property and rental yields: Rent yields are determined by the supply and demand of property. When investing it’s finding the balance between your rental income and cash flow.

If there is an oversupply of rental properties your rental income will reduce. This affects affordability and holding costs for investors.

Value: Look at the price of the property relative to similar properties in the same area. This will give you an idea of the real value of the property. Also consider the likely resale value by looking at the properties that are currently being sold in the area.

Design: Take a good look at the design of the house. Is it practical? Will people want to live in it? Does is have good natural light? What aspect does it face? What is the internal size of the property as this could affect future resale?

Projected Capital Growth: When you look at the macro and micro indicators to help you decide where to invest you give yourself a strong opportunity to see long-term growth with your property.

You can clearly see the crucial relationships of due diligence and number crunching in conjunction to all the above and using these macro and micro indicators which can really help you answer the big and important question, where do I buy?

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Buying Investment Property