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7 steps to get prepared for property investment

Property Investment Invest for Retirement

MyPropertyLife 22 May 2017

7-steps-to-get-prepared-for-property-investment.jpgSo you’ve decided that you want to buy an investment property, but you’re not quite sure where to start?  Follow these 7 steps to be on your way. 

1. Work out what your goals are

It is important you don’t get into property investment ‘just because’. To be successful, and to ensure you don’t make any mistakes that could have a detrimental effect on your finances, you need to be clear about why you want to buy an investment property.

Every investor is different, with their own particular set of goals, so make sure you know what yours are. Are you looking to have a nest egg for retirement? Or do you want to be more ambitious and look to replace your income so you can live off your investments?

After understanding your direction, it is then a good idea to know what the steps will be to get there, perhaps by using the SMART method. This will help to keep the plan manageable and achievable by breaking down what will be required to reach your property investment goal.

It can be overwhelming to just think ‘I want to retire by 50’, but if you can establish what you will need to make that happen, and work back from there, it is entirely possible to achieve it.   

 

2. Know the level of risk you are comfortable with

Someone with a young family to support is probably more risk averse than a single individual with no dependents. And while this is a simple way of looking at it, everyone needs to know what their risk profile is before getting into investment.  

According to this article from RealAS, there are two types of risk to consider - personal, and property - providing an understanding as to how to give your investment the best opportunity to succeed, as well as keeping stress levels to a minimum.

Before getting started, it is a good idea to speak to an expert to get a full understanding of your risk profile.

 

3. Have a close look at your finances

Before you can even think about buying an investment property, you need to know how much money you’re working with. So you need to sit down and go through your finances - work out what you have in assets, as well as savings, projected income and outgoings, and anything else that should be factored in which could have an effect on being approved for a loan.

Do you also know if you have the ability to service a mortgage on an investment property? Will it need to be completely covered by the rent, or can you top it up by a certain amount each fortnight? You need to know this, so you can research potential weekly rents for the suburbs you will be viewing properties in.

Check out this calculator from Westpac to help plan for what your investment property might cost you.

 

4. Draw up a budget 

As well as working out where you are right now financially, it is pertinent to also have a plan of your day-to-day living costs going forward. Where can you cut down on spending? Will you still be able to save? What happens if there is a big expense that occurs unexpectedly - to do with either your personal life or investment property?

It is vital to have a safety net, as well as balance your income and debt.  

 

5. Get a lender on board 

Next, you need to start the process of your loan application. You can do this with your bank, or get in touch with a mortgage broker whose job it is to look around at multiple vendors and find you the best deal.

Read more:  Using joint ventures to get on the property ladder  

6. Scope out a plan for potential properties

Once you are pre-approved, you can begin looking for the right property to invest in. But don’t rush - it is vital that you understand as much as you can about the market you are buying into, as well as having a good grasp on the rental environment of each suburb you put on your short list.

Here is where it is ideal to put together a plan or portfolio of the type of properties you are going to focus on - family homes? Apartments? Units on the city fringe? Knowing exactly what you are looking for will help you stayed focused on just seeking those particular ones out, and save you time from trying to look at every property that’s for sale.

 

7. Stay focused, take a deep breath, and go! 

You’ve come this far! You have done all the right prep, have pre-approval for lending, and have scoped out the ideal property to invest in. As long as you have mapped out your goals, have a good grasp on your finances, and spent time doing research, there is every possibility you will achieve great success.

So this is where you make your move to secure the house, and start the next journey - to find the right tenants.  

Need help to keep the risky ones away? Download our FREE guide now.

A Guide to Avoiding Risky Tenants

The information provided by MyPropertyLife is general and is not intended to serve as advice. Please see our Disclaimer for further details.