Property investing, as with any type of financial activity that requires taking on large amounts of debt, has an element of risk attached. You know that, right?
It’s this risk that you want to mitigate with thorough research, before diving head first into a deal.
Successful investors know that smart property investments are acquired via a sound investment strategy, around which is built careful planning and research. So here are the five essential ‘subjects’ you should do some homework into, in order to make it all the way to the top of the property ladder.
Financial Capacity and Risk Profile
Deciding on an investment strategy, based on your long-term investment goals, is critical. We’ve previously written a piece on how to get clear on this, you can find it here. To establish the best strategy for you, you need to understand your financial position and capacity to purchase an investment property, as well as how much risk you can handle as an investor.
You can undertake this process with the help of a suitably qualified financial or investment advisor.
Just remember though, free or seemingly ‘cheap’ advice can be very expensive in the long run, so don’t be afraid to pay for a sound, honest assessment of your position. It may be that you have to wait a while to actually begin your investment journey once you know where you stand, but at least you’ll have a timeframe and with that in mind, can prepare by moving on to research.
Your Power Team
Believe us, it takes a lot of combined and complementary knowledge to create a successful property investment strategy and portfolio.
It’s important to find advisers who have personally successful track records in property investment and ones that have a holistic approach and are part of a great team including a suitably qualified accountant, financial advisor and mortgage broker.
It also pays to be aware of people who are not necessarily looking after your best interests…
Your Ideal Market
Once you’ve identified your investment strategy, you should have a clearer idea as to the type of location that will best complement your plans.
While many of the properties on the market at any given time might be fine for a family home, they may not necessarily be suitable for your investment strategy.
You need to qualify potential locations based on the history of capital growth achieved and the likelihood of future capital growth based on the demographics of the area (the local residents' ability to afford to keep buying property) and the local supply and demand factors. Selecting the optimal location is about facts and figures, so never invest in a place based on whether or not you would want to live there, but whether it appeals to a broad owner-occupier and tenant demographic.
You can find our top tools for desktop due diligence here.
Your Best Investment
Once you have the location sorted, it’s time to think about the type of property that will best suit your investment strategy and the market in which you're purchasing. Remember, no two areas or streets are alike and you’ll always find pockets of property that represent more or less potential in any given area.
Usually, properties within close proximity to essential amenities, targeted toward the primary demographic of the region, will be in greater demand and therefore, dominate when it comes to capital growth.
For instance, in areas that are family-friendly you want to be close to the best schools and healthcare.
For younger resident demographics, the walkability factor (walkable suburbs will outperform in the future) and ease of access to things like public transport, shops, and cafes will prove popular with tenants and buyers alike.
Buying Well
Once you’ve identified a potential property, you need to make sure you don’t pay too much for it.
Successful property investors recognise that once they have acquired a new asset for their portfolio, the research doesn’t just end.
This is the time that smart property investors really kick it up a notch, critically evaluating their portfolio’s performance on an annual basis and ensuring they maintain an optimal investment and finance structure to maximise their gains and minimise their risks.
This includes considerations like how you structure your investment ownership, manage your investment-related debt, and create the optimal tax position – all factors that will change over time as you grow your portfolio, but it’s a great idea to get that forward planning and research in, in the early days.
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