Investing in property has practically become a nationwide hobby. Inspired by stories of successful journeys, more and more Australians are looking to start their own portfolios and create wealth by investing in real estate.
As many investors profiled in this magazine have shown us, real estate can be used by everyday people to create their own retirement endgame, one that can allow them to retire early from the nine-to-five life and enjoy the fruits of their labour.
It’s about having the freedom to enjoy your life, while earning significant income on your own time. It’s about learning new skills to upgrade and renovate and improve on a property you’ve fallen in love with. It’s about acquiring a certain amount of economic and business savvy in order to time the markets and invest in real estate to your best advantage, regardless of external influences.
That said, the significant amount of money involved in investing in property also means that a single mistake could prove to be financially ruinous. As a result, there are just as many stories of failure as there are of victories in property circles.
Prevention is better than cure, so before making any costly mistakes every prospective investor should keep the following questions in mind prior to embarking on their investment journey.
1. How much is the property really worth?
The price tag alone does not tell you the worth of a property, especially as it could be influenced by the opinion of the agent or the vendor. Do your research to find out how much the property you’re looking at is genuinely likely to be worth. In some situations it can make sense to conduct a property valuation to determine a dwelling’s actual value; at other times you can use online resources to help you calculate a property’s true value. A good property valuation looks at factors such as local area supply and demand, the specific features and quality of the property, as well as at how easy it would be to sell the property in the current market.
2. What infrastructure is in (or going to be in) the vicinity?
Infrastructure projects are vital to a suburb’s potential because they represent possible growth drivers. They could provide employment opportunities, schooling options, and openings for commercial investment. Moreover, projects in the pipeline could be an indicator of where the industry is going. For instance, the infrastructure being constructed to support the 2018 Commonwealth Games on the Gold Coast in Queensland suggests that plenty of jobs are in the area, which will facilitate capital growth over the next couple of years.
WHY DO YOU WANT TO INVEST IN PROPERTY?
3. What is the local culture like?
To make instant profits?
- Look at strategies to generate growth, like renovating and developing
To create an income stream?
- High cash flow investments that put extra money in your pocket each month could be the way to go
To build a retirement fund?
- This means playing the long game, so look for quality assets that will remain in demand for years to come
Too often in property investing people rely on facts and figures without qualifying the information for themselves. The local environment influences a property’s prospects because of factors like crime rate, the population’s make-up, community values, and gentrification potential. So it’s a good idea to become familiar with the suburb you’re thinking of investing in by getting to know the area at a personal level. Visit the area to get a feel for it, if you can, and obtain anecdotal information from local real estate agents and residents to back up the statistical data you’ve researched. This will help you to see if the local market is moving in a direction that fits with your projections.
"A crowded market limits the yields you could earn from rent, and also limits your chances of snapping up a good property on a street in demand"
4 What is the rental market like?
The performance of the local rental market is a crucial detail for an investor, since this is how you will pay for your investment on an ongoing basis. You need to have opinions from multiple sources, not just the selling agent’s. Check out property platforms like Real Estate Investar, Residex and CoreLogic, which can provide a range of information on vacancy rates and rental potential, based on the rental rates of similar properties in a similar area. In addition to your own research, it’s also a good idea to make contact with local real estate agents to get their ‘in the trenches’ advice and estimates.
5 Who are your potential tenants?
In order to spur rental demand, you have to know what the target market is in the area you’re eyeing. Are they students? Families? Professionals? This knowledge enables you to pick the right properties in the right spots; for instance, students are likely to be looking at multiple-occupancy dwellings that are near public transport hubs and close to conveniences. Families may be looking at houses on large blocks that are close to schools and community centres. Professionals may be considering apartments near their workplaces.
6 How much competition is out there?
Competition is healthy for the market, but not for a new investor in a sea of seasoned veterans.
A crowded market limits the yields you could earn from rent, and also limits your chances of snapping up a good property on a street in demand – an example is the recent influx of apartment blocks in cities like Melbourne and Brisbane, which has forced landlords to accept lower rents. A smart way to answer this question is to know what kinds of buyers saturate the market – are there more investors than owner-occupiers, or vice versa?And is there anything you could do to enhance the property in a way that gives it the edge over the competition?
HEADS-UP ON GOVERNMENT SPENDING
7 What is included in the sale transaction?
Online resources like those available at www.infrastructureaustralia.gov.au serve as excellent guides on the planned infrastructure in each state. They also provide information on project completion dates to help you see if the expected benefits will come at a time that fits with your strategy. Current planned spending on infrastructure includes:
New South Wales ($3.1bn) The NorthConnex Project in NSW aims to link the M1 at Wahroonga to the Hills M2 Motorway at West Pennant Hills via a toll motorway. The project is expected to be completed in early 2019.
Victoria ($1.23bn) The CityLinkTulla Widening Project in Victoria will widen and open up managed motorways on the M2 road corridor, which is composed of the Tullamarine Freeway and part of CityLink, and extends from Melbourne Airport to the M1. The anticipated completion date is in early 2018.
South Australia ($620m) The Darlington Upgrade Project in SA aims to improve the commute for residents in the south and the outer rings of Adelaide
. The project is set to be completed in late 2018.
Western Australia ($1.9bn) The Forrestfield Airport Link in WA will provide a public transport connection to the suburbs near Perth
Airport. It is expected to be completed in 2020.
Don’t assume that everything in or on the property is part of the sale and will be turned over to you once you settle. Be specific in identifying what parts of the estate are included, such as parking and storage facilities beyond the property itself, and appliances such as dryers. A conveyancer can help you draw up a contract that notes all the things you understand that you’re getting with the purchase. You can also request a Community Management Statement, which indicates the allotment of car parks and storage.
8 Does the property need work?
Depending on your strategy, it may be best to snag a property that is all ready for moving into – the better the home presents, the easier it will be for you to secure a tenant. However, a renovation strategy is a good opportunity to manufacture capital growth. When looking for a property that needs sprucing up, ensure that it’s all minor work – like a paint job, replacing carpets and updating window treatments – otherwise you could end up spending a small fortune bringing the property up to scratch. It goes without saying that having to delay putting your property on the rental market can eat away at your bottom line, so keep your reno timeline as short as possible.
"The price tag alone does not tell you the worth of a property, especially as it could be influenced by the opinion of the agent or the vendor"
9 What is your ultimate goal?
Are you chasing short-term cash flow benefits from rentals, or capital growth in the long run? The answer to this question will help you figure out your strategy. If you’re looking to build a sturdy portfolio with multiple properties, your aim should be to buy first for capital gain, as this allows you to have enough equity to purchase your subsequent homes. Many successful investors advocate building a portfolio that eventually has a mix of both cash flow and capital growth properties so you have all your bases covered.
Of course, being well prepared and asking these questions in advance does not automatically guarantee success for an investor. The ultimate way forward is to dive into the property market with your eyes wide open and a clear plan to get you from where you are now to where you want to be.
And remember: there will be ups and downs along the way, but the lessons you learn and the experiences you gain will be invaluable in helping you reach your ultimate goals.
THE INVESTOR FAQ
• How much is the property really worth?
• What infrastructure is in (or going to be in) the vicinity?
• What is the local culture like?
• What is the rental market like?
• Who are your potential tenants?
• How much competition is out there?
• What is included in the sale transaction?
• Does the property need work?
• What is your ultimate goal?