Property Investment 101 (part 1)

I recently had a discussion with someone who was planning to invest in property. Always enthusiastic for the discussion, I asked what research they had done thus far... none. I asked if they'd like to borrow a book that outlines property investment... no thanks. 

There is no other situation that I can think of, investing or otherwise, where people would spend hundreds of thousands of dollars without professional guidance or significant research. So many beginner investors believe that because they live in a house, because they live in a region, they know the property market and the property investment process. I do believe that property investment is generally a safe one, but perhaps this article will provide you with some knowledge and skills to best invest your money.

Most Australian property investors only hold one investment property. A tiny percentage of Australian property investors have more than six. I regularly hear stories of investment properties being a burden or being sold at a loss, the reason for which I can only assume is that the investor did not do adequate research prior to their purchase. Each property that I buy for my own portfolio must help set me up to purchase the next.  I do this through having the following check-list: 
1) Is the property in a region that has indicators for growth?
2) Is the property going to be easy to find tenants for? 
3) Can I add value to the property through a renovation or development? 
4) Will the property be cash flow positive? 
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If the property passes those basic tests, I continue looking, if not, I pass. 

When you look to invest in a residential property, you need to identify your holding costs (what it will cost you per week). I have basic numbers that I use to give me a general idea of whether a property is worthy of my time.
Approx. holding costs - rates: $2000/pa ($40/week), Insurance: $1100/pa ($20/week), Property management: approx $30 / week, Water access: $250/pa ($5 /week), mortgage (differs based on cost and structure, check out any online calculator or the link below). If you have strata fees, these need to be added also. 

An example would be on a $400,000 property that rents for $400 / week. Your weekly cost (rates - $40, Insurance - $20, property management - $25, water $5, and mortgage (assuming you're using equity and borrowing the full amount, interest only) - $360 / week) total $450 / week. This obviously puts you $50 a week out of pocket. If this had been a property that I purchased, I would have struggled to get finance on my next property. 

People get into residential real estate investing to secure their financial future, to retire early, without a dependence on  the government pension. Buying the wrong property can put you further away from this goal. Do your research. As Robert Kiyosaki says, "It is expensive to be stupid". 

Buying a regional property can still be negative cash flow. Keep your eye out on our site as we present the best ones to you. I am currently doing my due diligence checks on a property in a regional NSW town of a 40,000 plus population that is listed at $245,000. When I do the above checks for weekly costs (rates - $40, Insurance - $20, property management - $25, water $5, and mortgage (assuming you're using equity and borrowing the full amount, interest only) - $225 / week) they total $ 315 / week. This property is currently leased for $320 / week to a long term tenant, meaning that while it's only $5 / week, I'll be cash flow positive. I can use this for maintenance, upgrades and in a year's time, put the rent up to $330/week. 

Regional property is a great place to ensure you can invest while you can still afford to live. Always do your research. Research the region, the jobs, the history, the council's plans for the future and what government or business investment is being made. Let regional property put you in a position that lets you live now and look forward to the future. 

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Mortgage repayment calculator: 
https://www.nab.com.au/personal/loans/home-loans/home-loan-calculators/loan-repayments-calculator