When buying your first investment property, it’s important you do some due diligence and assess the risks associated with the property you are looking to purchase.
Below are some tips that could assist you through the assessment process.
- Falling in love with the property
You need to stop thinking like a home owner and start thinking like a business owner. However, you do need to like the property. If it’s a property you feel you could live in yourself, then likely someone else could also, and so the property is probably rentable.
- Checking the facts
Due diligence is more than just the physical inspection of the property, it’s also a thorough investigation of the suburbs rental market including – vacancy rates, average rents, average age of rental stock, zoning and government regulations.
- Infrastructure considerations
People are generally attracted to areas based on local infrastructures including – schools, shopping centres, hospitals and parks. It’s important to understand the surroundings and also investigate the ease of getting around through public transport, bypasses and expressways. If the location you are looking to invest is potentially lacking these facilities, do your research to see if there are any infrastructure changes in the near future which would introduce additional facilities which in turn may attract interest.
- The home improvement rule
If you are buying an older property with the intent of renovating, it will generally take three times the money and twice as long as you first estimate to get it ready to rent. Allow for additional funds to pay the mortgage while the property is vacant, and obtain a building inspection from a qualified building inspector.
- Cash reserves
A cash reserves is important as you don’t want to put unnecessary pressure on yourself to do sub-standard repairs, accept sub-standard tenants and make other poor decisions because of a fear of vacancy. When you have a sufficient cash reserve, you act rationally.
- Doing it all yourself
New investors often attempt to manage the whole process themselves. This approach can end up costing more in the long run. Find an accountant you can talk to, a lender who will work with you and a reputable real estate professional to find a property in your price bracket.
- Investing blind
Real estate investment risk can be directly proportional to knowledge. The more knowledge you have of investing techniques, financing, acquisition and negotiating, the less risky your investments will be. If you plan to purchase and hold the investment property for an extended period of time, and if your intent is to build up an investment property portfolio, it’s important to speak with an accountant, finance specialist and a financial planner to help determine the correct structure as it may be more appropriate to set up a trust rather than owning assets in your own name for example.
- Being under-insured
Insurance on rental property goes beyond insuring the building against fire or natural disaster. You need to look at comprehensive landlord insurance. Most major insurance companies now offer this product, which will not only cover you for damage to the property but also for loss of rent.
The above information is general in nature. It has been prepared without taking into account your objectives, financial situation or needs.
Before acting on this information you should consider the appropriateness, having regards to your own objectives, financial situation and needs before making any decisions. “Click here to view the full disclaimer”.