5 Tips for Property Investing
If you’re looking to invest in property it’s very important to have an investment strategy. Long term property investing can form part of retirement planning and generally you’ll buy a property and hold for a length of time, paying down debt and gaining passive income over time. Alternatively you can take a short term approach and either buy, renovate and then sell on or hope to buy and sell when the market fluctuates. The short term strategy is about profit taking. With either approach there’s a few things you’ll need to have in place and various checks to perform before investing.
Use a property Manager
Selecting property management professionals to run your property portfolio is an important decision. Many disillusioned property investors will wax lyrical with anecdotal evidence damning the property sector as a minefield for novice property investors. This is common where investors have rushed in to an investment sector, whether Shares, Bonds, Collectibles, or Property. An important question to answer is: do I attempt to manage the investment myself or do I choose to delegate that responsibility.
We are quite clear with our recommendations. Unless you have time to become a professional investor (study the sector, qualify and learn about the ramifications of inappropriate decision making) you should price in the cost of good management advice, then delegate that responsibility.
Your choice of manager is critical. Whether fund manager or property manager, good Financial Planners and Mortgage Brokers know who the best professionals are in most investment areas. We certainly do not advocate investing in expensive assets in any sector then managing them in an amateurish fashion.
Valuations
Kerbside Valuation: often a kerbside valuation will allow sufficient information to discontinue negotiations. It is not expensive and will provide the opportunity to proceed with further more costly reports if the outcome to the kerbside valuation is positive.
Registered Valuation, this report will tell you what the house is worth, comparable sales in the area, and may highlight items in need of work with the property. Depending on the level of borrowing, the bank may require a valuation, however even if they don’t it’s a good idea to get one done, to ensure you are not over capitalising by paying too much for the house.
Separate Chattel Valuation: when purchasing a property for investment a separate chattel valuation is essential. Depreciation on building and chattels differs. Your accountant will need to be informed of both. This valuation can often be done at the same time as the full valuation, so will keep costs down as you will save the valuer making two trips.
Pre-Purchase Checks
Land information memorandum report (LIM), a report from the council showing all the things that have been lodged with the council, such as consents, title lodgements etc. This report can take up to 15 working days to be done, which often is much longer than any vendor will allow for conditions. You can either go to the council and look up the records yourself or have them do it for you.
Builders report, a building inspection report will tell you if there are any problems with the house, any repairs that need doing, any potential building code violations, and other items of concern. If there are repairs to be done, you can decide to drop your price by enough to cover the repairs, don’t let the vendor do the repairs, make sure it is done by a qualified repairman of your choosing. In addition you can have the builders report give you a list of the items on the lim report, which may eliminate the need for one.
Engineers report, the need for one of these reports will likely be indicated by something from the builders report. This report looks more closely at earthworks, and key structural things.
Valuation for insurance
Chemical residue report
Understand the financials
The balance sheet and profit and loss statement are critical (make sure the numbers stack up).
Combing property investing with long term financial goals – the property investment should complement your financial plan as investing is only one part of total financial planning.
You are not overly focused on negative gearing – tax advantages are a bonus.
Understanding gross and net yield + return on investment + growth expectation
If your objective is for capital gain rather than yield – do not calculate above a 5% growth (inclusive of inflation)
Do Not mix personal and business accounts.
Think of the risks
Look at risk factors – interest rate movement, rental supply and demand, unplanned maintenance, tenants, vacancy rates, likely demographic changes.
Ensure correct ownership structure – to minimise tax, maximise asset protection and ensure compliance
Use a team of specialists, before and after you buy.
Run as a Business – measure, monitor, and manage.
FoxPlan make available their property analysis as part of an overall financial plan. This in-depth financial analysis is dependent on factual input and some assumptions. Whilst we do not guarantee outcomes for property investors we certainly recommend an analysis of this type to determine likely outcomes match predetermined goals. Always, always, always run the numbers through an objective written procedure to determine comparative analysis. Do not buy on emotion – make decisions based on facts.