Many young Australians are sitting on the sidelines, wanting to get into the property market but not knowing how to start. Surprisingly, one of the biggest barriers to getting started in property investment isn't necessarily saving up to find the deposit nor is it securing a loan, but it is the lack of knowledge around the property markets which builds fear in new investors and holds them back from even starting.
Property investing can appear complicated from the outside. There are mortgages, yields, capital growth, tax, depreciation, suburbs, demographics, infrastructure, valuations, auctions, contracts, and dozens of other terms that can leave any first-time investor wondering where to even begin. The starting point to investing in property is to build a solid knowledge base. Knowledge can be built progressively, and today's investors have access to more information, more data, and educational resources than ever before, and with the help of Artificial Intelligence (AI), this data can be literally obtained at the stroke of a key.
There will be some obstacles though, when building a solid knowledge base. It is increasingly important to distinguish between useful information from noise and even more important to understand how to apply the information to your investment strategy. Understanding how data and analytics can actually be used and translate to your investment strategy, can be a gold mine.
Start with the fundamentals.
Before researching individual suburbs or scrolling through property listings, a novice investor should first understand the fundamentals of property, which include:
- How property finance works
- How deposits and borrowing capacity are calculated
- The difference between gross and net rental yield
- Capital growth versus rental income
- Positive, neutral, and negative gearing
- Loan-to-value ratios
- Equity and refinancing
- Purchase costs, including stamp duty and legal fees
- Tax considerations
- Property management
- Building, pest, and other due diligence
- The characteristics that can make one property a better investment than another
This is where books can be a particularly valuable knowledge source. Unlike social media content, which often focuses on individual tips or sensational market predictions, a book can provide factual and structured framework for understanding the entire investment process.
For someone completely new to property, Lloyd Edge's ‘Buy Now: The Ultimate Guide to Owning and Investing in Property’ is a useful starting point. It is deliberately written for people who may have little or no previous property experience, covering everything from preparing financially and understanding the market through to selecting a property, negotiating, due diligence and building a portfolio. While ‘Set for Life, Lloyd Edge’ is a useful tool for investors wanting to understand the broader principles of building financial security, managing money and creating a pathway towards financial independence.
For a beginner in the market game, you don’t need to try to absorb everything at once. The best starting point is to understand the terminology and concepts, then gradually move into analysing actual properties. One important lesson to learn, is that you shouldn’t rely on a single source of information. Property is not a one-dimensional investment, and a successful decision will involve finance, economics, taxation, demographics, construction, town planning and local market conditions. Equally important is to always cross-check your information and the source of the information, if an article says a suburb is experiencing strong rental demand, don't simply accept the statement. Look at rental listings, vacancy rates, advertised rents and the number of properties available.
If a “property expert” is predicting that prices will rise, make sure you consider what evidence supports that prediction. If a property is advertised as an exceptional investment, independently investigate recent comparable sales and determine whether the asking price makes sense. This habit of questioning and verifying information is one of the most valuable skills an investor can develop.
Use property data rather than property hype.
Social media, blogs and articles can create some hype around certain property markets, but data driven websites such as CoreLogic, and realestate.com can help investors move beyond anecdotal opinions and examine actual market data. CoreLogic provides property and suburb information including sales data, rental information, market trends and property attributes. Its RP Data platform draws on extensive historical property information and covers approximately 98% of the Australian residential property market.
For a beginner, the objective isn't necessarily to purchase the most expensive data subscription available. It is to learn how professional investors assess a market.
Other great resources are Government backed, such as The Australian Taxation Office and the Australian Bureau of Statistics, and don’t forget the local council website. Some of the best property-investment education is available from government and independent institutions.
Importantly, investors shouldn't treat what they see or read on social media or property forums as a substitute for professional advice. For example, tax rules can be complex, and the appropriate structure and strategy will depend on an individual's circumstances.
If you are using sites like Domain.com or Realestate.com.au to search for properties available for sale, you might be surprised that these websites are not only tools for searching for properties but can be used to understand in greater depth what is happening on the ground.
These websites can assist you in finding recent sales data, shortlist potential locations, median house prices, median rental prices, rental yields and listing volumes, amongst some of the helpful tools. This type of data will evolve your market familiarity which cannot be learned through a book or in an instant, it is learned over time.
You will begin to recognise which suburbs are tightly held, which have significant new supply, which have strong rental demand and which appear cheap for a reason.
Driven by numbers, not emotion.
Property investment should ultimately come down to numbers, not emotion. Online mortgage calculators can help investors to understand repayments, while property calculators can be used to estimate rental yields, cash flow and borrowing scenarios, and these tools should be treated as modelling tools rather than crystal balls.
Ultimately, becoming a knowledgeable property investor is not about finding one secret suburb, one perfect property, or one expert with all the answers. Rather, it is about developing a repeatable process and continuing to be curious in the property markets. The education process shouldn't stop after buying the first property. In fact, the questions you’re asking will become more sophisticated as your portfolio and property knowledge grows. You may start to consider diversification, debt management, equity creation, cash flow, value-add opportunities, development potential and the next acquisition.
Property investment is a long-term game and the investor who commits to becoming a better investor with every purchase is likely to be far better positioned than the one who simply rushes to buy their first property.
