5 Tips Novice Investors Must Know Before Investing In Property

5 Tips Novice Investors Must Know Before Investing In Property

Property investing is a great way to boost your retirement income or to provide extra funds to improve your lifestyle. And with Australian property prices increasing at a rate of 5% YoY since 2004, you will most likely see a better rate of return on a property portfolio than a savings account.

But property investing is not easy – many novice investors have come unstuck by rushing into the market unprepared. To be successful, you need to do a little homework. So with that in mind here are five tips that beginners need to know before buying their first investment property.

1. Get your finances in order

Before you do anything else, you need to get your finances in order. You can’t buy a property without knowing how much you have to spend. So sit down with a finance broker and get an idea how much money you can borrow. This will set the upper limit on your property search. And don’t forget to account for the cost of renovation ( if it’s an existing property), building and site costs (if it’s a new build), conveyancing, stamp duty, taxes, and legal costs in your budgeting as well.

2. Know your market

Once you have established a budget, you can start searching for suitable properties. But before you rush off to your nearest real estate office, you need to understand the needs of your potential tenants. For example, if you have a budget for a one-bedroom flat, your tenants are going to be young professionals who are seeking to live near the city, so this is where you should focus your search. Buying a one-bedroom flat out in the suburbs is not the best investment to make, so make sure you invest in a property that suits the needs of the demographics that want to live in that location.

3. Location, location, location

It’s a cliche but its true. When it comes to purchasing your first investment property, location is critical. In the early stages of building your portfolio, you need to maximise your returns. So choose an area which shows good potential; things to look for include new transport links, early signs of gentrification, excellent schools, new employment opportunities and the development of public amenities such as shops, leisure facilities and public parks.

4. Don’t get personal

When buying a property, most people think about their own needs before anything else. But remember this a strategic property investment, it isn’t a home for you or your family. So try to avoid thinking ‘I would like to live here’ and put yourself in the shoes of a tenant instead. Successful property investment is about following a logical process to supply the needs of tenants at the lowest possible cost to maximise your investment returns.

5. Maximise property investor tax incentives

When it comes to real estate investing, it’s essential to choose the most tax-efficient method for purchasing the property. There are several methods of buying a property, including in your name, through a superannuation fund or via a trust. You must understand the differences between them before making a final decision. It’s always advisable to sit down with a financial advisor or an experienced property investor to thoroughly explain your options.

Once you gain an in-depth understanding of property investment, it can be both personally and financially rewarding. You will build lots of new relationships, and watching your investments mature over time is rewarding in itself. But it’s also not for the faint-hearted. To be successful, you need to do your homework and buy the right properties that suit both your budget and the tenants that aim to attract. By following these 5 tips, you will be able to avoid the common mistakes most novice investors make so you can successfully build a profitable portfolio of investment properties.