Your Investment Property spoke to prolific property investor - Sam Saggers to find out his top tips to help you minimise your investing risks
1. When researching, look for strong rental yields of 6% and above
A tell-tale sign of growing area is gentrification. Businesses are moving into the area, the population is growing and an infusion of both public and private money is being poured into the region.
Also, look for a strong council that has a tight grip on growth in the region combined with a strong vision for its future.
Look for areas that have seen growth of at least 1% to 2% over and above the last five-year average.
A quick way to calculate yield:
Weekly rent x 52 weeks, divide it by the property purchase price and multiply by 100.
A property worth $400,000 with a $400 weekly rent has a 5.2% yield.
$400 x 52/$400,000 x 100= 5.2%
If the rent is below $400 weekly, your yield is less than 5%
Don’t forget that you can follow some strategies to boost your yields without waiting on the market.
You can, for example:
2. After finding a deal, speak with other agents in the area to get a better idea on the neighbourhood
- Buy at a discount
- Refinance to pay down your mortgage
- Add a granny flat to create an additional revenue stream
Agents are obviously in the business to make money so the better light they can cast on their
property listing the better.
There’s nothing wrong with this unless of course they outright lie, however as a property investor the responsibility is yours to do your due diligence and discover any “dirt” a
property’s neighbourhood might hold.
A great way to ferret out information such as lousy neighbours, a very busy street or vandals, is to speak to agents who know the area.
Agents are very busy people, so the more information you've gathered upfront, the better your chances of finding someone who will agree to speak with you.
Call a rival real estate agent and tell him that you’ve put in an offer on a property his competitor is listing. Ask him what he thinks about the property, including its location. His answer might be very revealing, especially if he was unable to sell it himself.
Depending upon what you find out, you can potentially have the ammunition you need to get a reduction in price or a change in the terms of the deal.
3. Stick to investment properties within the $300,000–500,000 price range
The majority of individuals buying properties are owner-occupiers, and a very large share of them will be looking for properties just like yours – affordable and within their price range.
By purchasing properties in the “meat and potatoes” price range, you are ensuring a better resale value should you decide to unload the property. I recommend buying a property around the $380,000 price.
4. Plan for $3,000 worth of repairs when purchasing an existing property
Include repair costs of at least $3,000 when calculating the profit potential of an investment property.
If the obvious repairs exceed this amount, it may be worth reconsidering the deal.
5. Keep a good reference file on your investment property contacts
As property investors we rely on expert advice and opinions from many professionals: agents, valuers,property managers, mortgage brokers – just to start the list!
It’s important to maintain a warm rapport with these individuals – if for no other reason than to simply touch base with them from time to time.
To keep in touch, use a good system of customer relationship management (CRM) rather than just your phone’s contact list. You can even create spreadsheets with their personal information. In addition to the typical contact information – phone number, email, postal address – enter additional information such as their families, or birthdays.
Don’t ever forget that the professionals you count on to put together a great investment property portfolio are people with their own dreams and desires, too.
If you work at creating a good connection, you may receive notice of deals before they hit the market and be warned of any potential issues as well. Thoughtfulness goes a long way to creating a great working relationship.
6. Look for properties that are not on the market
This strategy works best when the market is at the bottom – before word has gotten out that it’s starting to move!
Observe the neighbourhood you’re interested in, paying close attention to the condition of the properties.
For example, if you’re looking at one deal, look around the area at the other homes. Take note of who lives nearby and the condition of
If the property looks like it needs just a bit of care, but is otherwise in good shape, the owner may be more willing to negotiate than someone who already has their home up for sale.
7. If you can’t get a return of $3 for every $1 you spend, don’t renovate
Renovation can almost be considered an Australian pastime! As much fun as it might be to renovate, as property investors we’ve got to keep our heads straight when calculating the profitability of such a venture.
Spend your renovation dollars where they’ll have the most impact, but don’t spend all of your cash on a single upgrade – such as a new kitchen – when the bath is in need of some help!
Determine the cost of your renovations and if you don’t get back at least $3 for every $1 you spend, either don’t renovate or change your renovation plans.