Purchasing your first investment property can be a daunting prospect, following these 8 steps will have you well on the road to success.
Build a team of experts to support you
Examples of the type of expert that you will need to have on your team are solicitors, accountants, finance brokers, property coaches/mentors, property managers, valuers, quantity surveyors and insurance brokers.
Establish your borrowing position
Contact your mortgage broker and ask them for an assessment of your borrowing position. Knowing your borrowing position and what you can do to improve it helps you to plan and work out the type, number and profile of the properties that you can afford to buy.
Establish the right entity to buy your property in
The question you will next face is what entity you should purchase the investment property in. Should it be in your own name, your spouse’s, child’s or partner’s name? Or should it be in a trust (hybrid, discretionary or unit trust), a company or a combination of the above?
Also, how many properties should you purchase in the one entity and why? How should you structure the purchase to provide maximum asset protection while at the same time providing you with maximum leverage, minimum tax and the best return on your investment?
Establish the right buying strategy
What kind of property should you buy? Should it be a capital growth (negatively geared), cash flow neutral, positively geared or a cash flow positive property? What kind of return do you need to get from the property in order to sustain it and/or your lifestyle?
Establish your buying rules
Buying rules will help you focus your search on properties that fit your buying strategy… Typical questions that you should ask yourself when establishing your buying rules are:
What kind of properties should you purchase – houses, units, townhouses or apartments?
How many bedrooms should it have?
What yield should the investment property provide?
Should you buy new or established properties?
Find the investment property
The first step is to select three areas of buying interest that relate to your strategy (i.e. cash flow or capital growth). Use the many internet property websites available as a means of finding properties in your search areas and then apply the buying rules that you have established to zero in on the right property.
Contact three property managers in your search area and ask them what tenants are looking for when looking for a rental property.
You could also contact three real estate agents in your search area, give them an overview of your buying rules and then ask them to contact you with any properties that match your property profile.
Crunch the numbers
Before you “fall in love” with the property make sure the deal is viable, make sure you analyse the property financials to make sure the property fits your buying strategy.
Negotiate the price
When you have found the investment property that you want to buy and the numbers work for you, put in an offer in writing, this should be done quickly. Add “subject to” clauses such as subject to finance, subject to satisfactory building inspection, give yourself plenty of time in the contract “subject to” clauses to compete your due diligence investigations.