More and more people are getting into the investment property business. However, not all of them manage to make it past their first project. It doesn’t matter if you are a veteran or a novice in this field, take a look at these tips in order to avoid the most common pitfalls.
Think logically when choosing a property
You need to understand that investing in a property is not the same as buying a house for yourself. You will follow your heart when looking for a family home. Here, you need to think logically; don’t look at the details but be rational. Can this property provide you a return on investment? Will it attract tenants? Can it serve you in the long run? Think about the gains and the economics.
Plan everything thoroughly
There is that old saying: “If you fail to plan, you plan to fail”. Don’t let that happen to you. You need to set goals and then work out a plan that can get you there. Decide what is more important to you, short-term or long-term goals, and plan accordingly. Knowing what you want to achieve will help you choose the right property.
Don’t rush in but don’t take too long either
There are two common traits among novice investors; they either act impulsively or are too cautious. Don’t think that after attending just one seminar you are ready to step into the business. Most people who do this decide to give up because they did not get rich instantly. On the other hand, there are people who attend every seminar and read every book. This results in them being unable to act due to all the information. Don’t wait too long or you will never overcome this fear of investing.
Understand property markets
This is something that takes time. You need to do your homework thoroughly and keep up with the trends and changes in the market. Make sure you get to know the area where you plan on buying the property. Talk to the locals and real estate agents to discover as much as you can about the historical values of the properties, the vacancy rates and all the amenities. See whether the area is prone to changes in demographics and whether it would be a good long-term investment. If you fail to understand the market and decide on the wrong neighborhood, you stand to lose a lot. Don’t invest in small apartments in an area that attracts families or in large, family homes if young, single individuals are your target.
Have the finances in place
When it comes to the finances for getting a property, you should consult with a professional. They will let you know about your options. In case you’ve managed to save a lot of money, that can be your main source of finance. Other options include getting traditional bank loans, fix-and-flip loans and using home equity. There is also the option of finding a partner. Dealing with finances incorrectly can have serious consequences for your endeavor.
Manage your cash flow
You need to understand that there are expenses involved in acquiring and maintaining a property. Seeing as how it is very easy to get caught in the pitfalls of poor cash flow, make sure to talk to professional accountants who will help you with this issue. You need to see whether your income will be enough to cover all the outgoings. As a rule of thumb, you should allocate about 10% of the property’s value for expenses such as insurance, maintenance and management fees. Also, account for contingencies like unexpected maintenance costs and vacancy periods. By properly estimating your expenses and income, you’ll be able to avoid unplanned situations.
Don’t forget about taxes
Many new investment property owners tend to overlook taxes. There are many things to consider, so make sure you don’t miss anything. Keep a record of every income and expense. If you plan on doing some construction, some costs can be claimed as capital works deductions and there are experts that can help you with this. Luckily, finding a professional residential quantity surveyor in Sydney or any other bigger city is no problem. Moreover, there are many other costs that you can claim, such as borrowing expenses and purchase costs.
Follow landlord and tenant laws and maintain the property
If you plan on renting rather than selling the property right away, you need to have landlord and tenant laws in mind. This will allow you to make fewer mistakes. These laws regulate the cost of rent and deposits, as well as the rights of tenants and landlords. They also cover the termination of tenancy and how to deal with it. Moreover, do not forget to provide proper maintenance to your tenants. There are safety and health standards that you must follow. In addition, no one will want to rent your place if it is not well-kept.
There you have it. A few simple tips to keep in mind before starting a new investment project. Some of them, you will be able to do on your own, but for others, you will need a professional’s help, so don’t hesitate to get it.