7 Points To Consider Before Investing In Real Estate
- Know when to buy
- Know where to buy
- places of good employment, development and growth
- states that have homestead exemptions
- Who should manage the property
- manage yourself
- hire a property manager
- Have a plan
- understand the risks
- do your due diligence
- Don't get emotional or attached
- not your personal home
- view it as a business transaction - make money
- Know the basics and the math
- lots of number crunching
- understand all the numbers, carrying costs
- Invest for the right reasons
- landlord? rehabber? flipper?
- actively involved or a passive investor?
10 Most Common Mistakes (If you fail to plan, you plan to fail)
- Strategy (or lack of):
Have a game plan - where are you heading and how you intend to get there.
Put pen to paper - are you going for income or capital growth, negative or positive gearing, new or established housing, short or long-term investment, houses or units or perhaps a combination of all of the above.
- Be Analytical, Not Emotional:
As an investor make judgments based on 90 per cent logic or analysis and 10 per cent emotion. Don't talk yourself into desperately wanting a particular property because you have formed an emotional attachment to it, you will be far more likely to pay too much and over-capitalise on your investment. You must remember to detach yourself from the buying process and cease negotiations at your "pre-determined walk-away price". There will be another opportunity around the corner.
- Headlong Rush or Dithering Fence-Sitting:
Find a happy medium between rushing out and buying the first property you come across (often paying too much) and attending seminar after seminar and over-analysing each property to the point of complete inaction.
- Profit Impatience:
Property investment will not make you a millionaire overnight, rather it is a long-term prospect that lacks the volatility in values of other commodities such as shares. This is the strength of bricks and mortar - its ability to provide a steady gain in value over time.
- Improper property selection:
Don't buy an apartment in the outer suburbs where family homes are most in demand and vice versa. Being close to amenities such as schools, shops, sporting and medical facilities can often increase your profits, but don't buy right on their doorstep as this often makes a property less liveable.
- Insufficient Research:
Glancing through the local paper to get a rough idea on property prices in an area is not enough. Talk to real estate agents, neighbours, the local council, the water authority, body corporate managers if applicable and the tenants and property manager if the home is currently leased. Don't skimp on research - it's far too valuable.
- Overestimating Income and Underestimating Expenses:
Research how much rental income you can expect to achieve by seeking median rental figures from the relevant Real Estate Institute and local property managers. Attend open houses to see how much the market is willing to pay for properties similar to the one you're considering. On the flipside, ensure you allocate enough funds for all potential expenses you'll incur while holding the property.
- Inappropriate Financing:
Look for the longest term, lowest overall cost loan with a fixed rate - don't focus on the interest rate alone. Remember that this is a long-term purchase of a long-term asset and as such, needs to be financed adequately.
- Property Inspections:
br>Examine the property carefully both inside and out. Are there any signs that work has been done to cover up a more serious problem, such as cracks that have been plastered over? Thoroughly inspect all rooms taking note of paintwork, floor coverings, indications of damp or peculiar smells. Turn taps on to test water pressure and test appliances for any faults. In general, get a feel for what it would be like to live in the property so you know how your tenants might find it. Are they going to be comfortable in the home and if not, what would you need to do to make it more accommodating? Be thorough and always do a second or third inspection at different times of the day to gauge how the property looks in different light and how its surrounds could impact on it, such as nearby road noise, etc. Take photographs of the interior and exterior to assist when you come to conduct your final inspection, which you are entitled to do within seven days prior to settlement under the General Conditions for Sale of Land. During this visit you should ensure that everything is as it was when you purchased the property and that no fixtures noted in the Contract of Sale have been removed.
- Self Managing Properties:
I started out thinking I could do it all myself. Then as I added to my portfolio, the everyday nuisance of dealing with tenants became more of a burden than a blessing. Worrying about the little things that concerned my tenants was eating into precious time that I could have been utilising to further my investment goals. How much better could your lifestyle be knowing that you have a professional on your team, whose full time job is looking after your property?