How to START an Investment Property Portfolio in 2019
– and the biggest mistakes to avoid!
Have you continuously made New Year resolutions to break into the property market, but as each New Year rolls by, you wonder why you have not been able to take the leap?
2019 is the YEAR FOR BUYERS.
The tables have now turned, and it is no longer a sellers market. It is the best time to negotiate if you are a buyer, and now is the perfect opportunity for first time investors to enter the market.
So, how are you going to start your property portfolio in 2019?
Solid Asset Base
The first investment property will always form the cornerstone of the portfolio and drive the future investment purchases.
It is important that this first purchase will assist in setting up the portfolio in the future. In fact, most property investors never make it past their first property, and even less are able to purchase two or more.
If you purchase the wrong investment property, the cost of offloading it can be really high, and hold you back from what you’re trying to achieve.
It is important that you understand where you’re heading, have a clear and precise investment strategy, have a long term portfolio focus, and have a team of experts all working towards your goal. Don’t waiver from your strategy, or lose sight of the long term plan as this will only be detrimental to your success.
A lot of newcomers to property investing are using the rentvesting tactic in order to start their property portfolio. As a rentvestor, you decide you want to buy an investment property, and are happy to rent where you want to live. This can be a very successful strategy for both first-timers and existing property owners because this tactic will typically help you grow your portfolio faster than an owner occupier. But, you must be careful how much you pay in rent.
For first time investors, this tactic may mean some Government Grants are not accessible, particularly if you rent out your investment property right away, or buy off plan and sell once completed.
Quality, not Quantity.
Investing is not about going and buying as many properties as possible.
Although the prospect of owning a lot of affordable properties may seem attractive, you will be able to gain much more by owning a solid performing investment rather than several poor investments.
When investing in Real Estate, less is usually a more wiser approach. This allows you to ensure the properties in your portfolio compliment each other, each property contributes to the growth of the overall portfolio, and your portfolio is growing to help you to achieve financial freedom in the long term.
Focus on Capital Growth.
Building equity in a property is the key to wealth. This can be achieved through a capital growth strategy as the value of your portfolio increases over time.
Don’t just focus on short term cash flow and rental yields, because what is going to generate your wealth in property over the long term is the capital growth.
A portfolio of fewer, high performing, quality properties will deliver better returns through capital growth over the long term, even if they don’t have high yields or immediate cash flow in the short term.
Top mistakes to avoid when starting a Property Portfolio
So, you have decided to take the leap and start your property portfolio, but what are the biggest pitfalls for first time investors? Here we list the top mistakes for first time investors.
Buying the wrong type of property for the area.
When you begin looking for investment properties, you need to put an owner occupier hat on, not an investors hat. Sure, you may want to get the most bang for your buck, but a large family home in an area orientated by student accommodation would not be an ideal investment. The same goes for a one bedroom apartment in an area dominated by large family homes. Do your research to understand what the demographics of the area are, and what the demand is for the type or property you are wanting to invest in. Remember, you will need to either rent it out, and/or sell it to someone who wants to live in the area.
Poor transport links.
Properties that are close to amenities, with good transport links have proven to be more fruitful investments. This is because the majority of people need to commute to work so there will always be demand for properties close to public transport.
Underestimating purchasing costs.
It is always advisable to have a strong buffer for costs when purchasing property as it is easy to underestimate all costs involved. Saving enough to just cover your deposit will only lead to financial strife.
Typical costs in purchasing a property include (but are not exclusive to) the deposit, stamp duty, Solicitor/Conveyancer fees, building and pest inspection, property insurance, holding costs until a tenant moves in, and minor maintenance costs to bring the property fit for rental.
Incorrect Finance structure.
Just as important as finding the right property for your investment portfolio, is ensuring you have the right finance structure for each of your investment purchases.
It is imperative you have an experienced mortgage broker who understands investment financing and has your long term investment strategy at the key of all financial decisions.
Not insuring your investment.
Never try to save on costs by cutting back on complete landlord insurance. Your insurance covers you should something major happen to the property. Some policies will also cover you for loss of rental income if your property is severely damaged.
When setting a value to ensure your property for, always include an amount above the rebuild value (approx. $30k-$50k). This is an allowance for land clearing should you have a total loss of your property. You should review the amount your property is insured for annually to determine you are not under insured as build costs increase.
Make sure you read all the fine print to understand what you are covered for, and what you are not.
If you are looking for a Buyer’s Agent to assist you with purchasing a home or investment property in the Sydney, Brisbane and Newcastle regions, please get in touch with Aus Property Professionals here or give us a call on 1800 146 837!