Are you gearing up to buy an investment property? About to sign on the dotted line? Or just getting an idea of whether property investment is for you? Before you do anything, perhaps you should take these 10 tried and tested ‘rules’ into consideration.
Over the years we’ve heard tales of hundreds of thousands of dollars going down the gurgler, just because these basic rules were ignored.
So, why not start your property empire out on the right foundations, by following the simple logic of our 10 rules…
1) Never buy investment property without seeing it.
“Well, of course not,” most would respond, but we still hear of people paying large deposits and signing up without even travelling to view the site of the property.
Pictures unfortunately don’t tell a thousand words, so get in and take a look around. What’s the local area like? Is it really going to appeal to the kind of tenant you desire? Even on a new build it pays to just go and get a feel for how the house would sit on the site – very hard to tell off floorplans whether the section’s dead flat or on a 40° bank! Where does the sun lie? Does the property have rental and resale appeal?
If it means heading to another city to check out the potential new purchase, do so. The cost of a plane ticket or a tank of petrol is miniscule in the grand scheme of how much money you’ll be investing in the property.
2) Only buy from the builder directly or through a licensed real estate agent.
This simply ensures that there are no other parties in the middle of the transaction ‘clipping the ticket’, which usually means you’re paying an inflated price.
Sometimes a skilled agent can add real value for you, especially when buying new.
3) Rental guarantees – are always, always paid for in the price.
What we mean is, that a seller who feels it’s necessary to provide a rental guarantee will cover the cost of the guarantee by further inflating the sale price.
Avoid sellers offering rental guarantees – you will almost certainly be paying too much.
4) Never buy hotel rooms.
Have you ever seen a resale market for secondhand hotel rooms? No – one does not exist. Most hotel rooms are subject to a very long management contract to a hotel chain, leaving you entirely at their mercy with no exit strategy whatsoever.
This is a very big mistake to avoid.
5) Don't sign anything without independent legal advice.
This goes without saying, but sadly some people do still skip this important step. A good solicitor will earn his or her keep. They know the ins and outs of legal documents and can point out any concerns that you need to be made aware of in respect to the form and content of the agreement.
6) Pay for your own valuation.
Don’t feel the need to accept a valuation supplied from the builder or developer. The key here is to access a valuation from a larger well-recognised valuation firm, with a reputation for knowing the area and the relative values of the property and its surroundings.
7) When buying off the plan, stick with brick and iron freestanding houses or at least freehold townhouses.
There are multiple benefits to this strategy. Here are a couple of them:
- You are involved directly as the sole owner of the land the investment property sits on.
- The transaction is with you alone. You are not dependent or waiting on other sales for the project to go ahead.
8) Focus on three and four bedroom properties.
The three and four bedroom market is where the best action happens – it’s where you find long-lasting rental appeal and popular re-sale demand – which means long-term capital growth. If your budget can stretch there, then that’s the ideal place to be.
9) Always remain in control of your investment.
Take caution on these two mistakes:
- Avoid any multiple ownership structures (syndicates etc.) – they often leave you with no exit options and no control.
- Avoid long leases of more than five years, even from government departments, if buying new. Again, no ability to exit with your original equity.
10) Only appoint a property manager who:
- will provide a service guarantee.
- will lease property on a fixed-term basis (rather than by periodic rental).
- will provide an account of actual rent received at least monthly from an audited trust account.
- has a thorough checking system in place for vetting new tenants.
- makes regular quarterly inspections, with written reports.
- allows you to end their management contract, with 30 days notice from you.
If you want more tips and info, have a look at our Investment Property page and Iron Bridge Property Management services.