Your First Investment Property – 3 Signs You’re Ready
If you’re considering buying your first investment, then congratulations! This is a huge step towards improving your safety net, and gaining greater financial stability later in life. Brisbane is a great place filled with opportunities to set up your investments, as investors and residents we think so!
You might still be a little nervous about it. Don’t worry, that’s normal.
It’s important to get the right information about how to invest in property and take the right first steps. As the cliché goes, by failing to prepare you are preparing to fail. Let’s avoid that. There are a few misconceptions out there that can trick you. We’re going to take a quick look at a few things to keep in mind when investing. Then we’ll show you how to tell if you’re ready to buy your first investment home.
Remember: An Investment Home is Different to the Home you Live in
Many people assume an investment home is like buying any other house. They treat the process like buying a second home. While it’s true that properties can share many strengths in both situations, you’re still buying them for completely different reasons. Let’s outline a few differences.
First, your investment home doesn’t need to match your dream home. Or come close. While you often buy a house to suit factors within your life like local schools, lifestyle and proximity to employment, an investment can be anywhere you choose.
For example, your normal home might need four bedrooms so there’s space for your family. But the investment home doesn’t need that. All you need to find is an affordable house in a suburb that’s set to increase in value. You can easily find the right tenant afterwards with the help of a property manager.
Secondly, this isn’t the home you’ll raise your family in. Normally, when searching for the property we find something that suits our lifestyle, our tastes and our family lives. Buying our own home is an emotional investment in how we live. However, with your investment property, it's best to treat the process as more of a business transaction. The business of investing. It doesn’t have to be the best house in the best suburb (or even in your city!). Rather than looking for items that match your lifestyle, you’re looking for items like rental yield and capital growth through improvability on the property and future suburb growth.
Lastly, there are many ways to form and structure your investments, manage your tax and returns. While the advice in this blog is general, always discuss your individual situation with your accountant or financial planner who can help understand the best ways forward for you personally. Some examples of how investment property differs from lived property are:
Management fees, maintenance and utilities to your investment are tax deductible.
Tax and capital gains implications, i.e. from earning additional income or making losses (negative gearing).
Loans can be structured in ways where you may prefer not to pay down the loan, i.e. interest-only loans while you aim for growth in capital gains.
Keep these points in mind as we look at the 3 signs you’re ready to start investing in property.
1st Sign – You have $10,000 Spare
That might sound like less money than you thought. But remember, all you need in order to buy an investment home is the deposit. You don’t need to pay off the mortgage the same way you do with your own home.
Also, you don’t need to buy an expensive home the first time around. In fact, a smaller, cheaper home is the perfect first investment. You can buy an apartment or even a small cottage. This way, you can practice buying an investment home and develop the skills and equity you need to expand your portfolio later.
Because you’ll be earning a rental income through the property, your ability to pay for the mortgage has reduced importance to the bank. While you need to prove you can weather the storm if your tenant stops paying rent, or the property becomes vacant, often the largest expense to consider is the ability to expense for maintenance, repairs and compliance.
If you’re lucky enough to have a more than 10k spare, you can consider going straight for a higher value house. That’s ok too. Just don’t be too impatient to get into the big league. All houses tend to naturally increase in value over time, regardless of their size. Getting an expensive house won’t make capital growth happen any faster. When it comes to investing in property, patience is your best tool.
2nd Sign – You’ve Done Your Research
And we mean real research. It doesn’t count if you had a chat with your mate at the bar, who reckoned he’d read an article somewhere!
You need to speak with the experts. That means your accountant or your financial planner; real estate agents and property managers.
A good Real Estate Agent will help you figure out what you need to look for in an investment property. They’ll highlight which suburbs are set to boom in value, from Brisbane to the wider South East Queensland region. They’ll also help you find a property will suit your budget. This level of insider knowledge is very difficult to find anywhere else.
Internet research is also a good place to start. You can do your shopping to see what the average prices are and get an idea of what you’re looking for. Just remember the internet is not a substitute for speaking with an expert directly.
You might be thinking, ‘I’ll talk to an expert once I know exactly what I want.’ But can we encourage you to speak to someone before then? Our real estate agents are here to help you form a plan, even if it’s just in the beginning stages. Many customers visit us many months prior to making their transaction concrete. It's all about form a plan that helps you make the best possible moves. Like a board game. You don’t have to be an expert-player yourself! That’s what we’re here for.
3rd Sign – You’re Planning for the Future
If you’re at a stage in life where things are stable and you’re ready to plan ahead, now may be the time to invest.
When you’re younger, you often spend every day scrambling to just get by. But as you age, you get more settled in your career and life direction. This is when you can start looking ahead a few years, even decades.
If your life is reasonably steady, then now is a good time to look ahead. Plan for the future in the form of an investment home. Plant something for yourself that will bear fruit in the years to come.
- - - - -
We hope this blog present some basic early steps to see if you’re ready to invest in property. Remember you can start small, and speak to our experts to get professional guidance. While this is a small example, there are many more decisions to be made to help your investment achieve success.
Whether you’re looking to dip your toe in the water, or to start a big climb towards amassing a large property portfolio, we all have to start somewhere. Pursuit Real Estate will help you begin – or continue – your journey.