10 Tips for First-Time Real Estate Investors

Interested to invest in the Australian property market? 

You may be looking to grow your money now for future security and retirement. Investing in property is seen as one of the most lucrative opportunities to build wealth. The common misconception, however, is that property investing always generates positive returns. While this is true for most cases, you have to be aware of the competitive reality in today’s property market.

Before you contact your trusted real estate agency, here are 10 useful tips for beginner investors. Read on to get some golden nuggets as you begin your journey into property investment. 

1. Don’t rush.

Australia’s property market has been booming in recent years, and while this is very favourable, this also gives a false sense of security to new investors. It can be tempting to go with the flow and jump right in.

As a first-time property investor, gaining the necessary understanding is a must. Get to know the industry first.

2. Assess your finances.

Getting into property investing is not cheap, so gauge your current finances and capability to borrow from a lender. Upfront costs, realtor fees and repairs are just among the expenses investors need to know other than the price of the property itself.

To put yourself in a better position to invest, consider consolidating any current debt and improving your credit score for a better loan. See how much of your savings can be used for the down payment. If you currently own a property, unlocking its equity may be possible and can be used for securing additional funding from a lender.

3. Don’t go all in. Start small.

Build your portfolio slowly and invest with only a small portion of the available funds. It is a misconception for beginners that you need to start with an expensive real estate investment. Real estate prices and rents fluctuate up and down without warning, which can quickly turn a good investment transaction into a bad one.

A useful tip is to take on smaller real estate deals to develop your confidence as an investor. You can always put out larger investments later, but you cannot recover your capital from an investment loss.

4. Familiarize yourself with the market.

If you’re an aspiring investor, you should get to know the demands of your local real estate market. Some things to look into are:

– Type of properties being sold

  • Residential – This includes properties where a client or a family pays to reside in the property. Houses, townhouses, condominiums and apartment buildings are under this type. 
  • Commercial – A property leased exclusively for business purposes is commercial real estate. It includes both retail and manufacturing properties.
  • Retail – Retail real estate is under commercial real estate and solely for selling products. This includes malls, shopping centres, retail stores and shops. 
  • Industrial – Unlike retail real estate, industrial real estate includes properties used for industrial activities, such as distribution, research, manufacturing, assembling and storage of products.

– How long do properties stay in the market

– Prices of neighbouring properties

In addition, you should do your own market research and know the area’s property taxes, crime rates, amenities and other information. Knowing about competition saturation and homebuyer preferences can help your future investment decisions, too.

5. Learn about real estate investment strategies.

To ensure that your investment brings you high returns, educate yourself on the common investment strategies. These strategies are key to the know-hows of making money in property investing. Read books about them to know which business formula will be best to start with. This will help you choose a strategy that will work best with your current circumstances.

Here are some common approaches to investing in real estate.

  • Capital Growth Strategy

Capital growth refers to the expectation that the property you will buy will increase in value exponentially over time. Your priority is to scout the market for properties that are in high-growth or high-demand locations.

Pros: requires minimal work, passive investment, long-term investment, door to future financial freedom

Cons: complete reliance on market trends, cash flow constraint

  • Positive Cash Flow Strategy

Cash flow strategy focuses less on capital growth and renovations. This strategy prioritizes earning more and spending less. This is best for beginner investors with low income and for those who are looking to offset losses from negative gearing.

This strategy implements charging high rent rates that will cover costs, such as maintenance, mortgage cost and property management fees. You can take advantage of this in a highly competitive rental market with low mortgage interest rates.

Pros: high yield cash flow, self-supporting property, offset negative gearing losses

Cons: lower capital growth, slow build of equity, little to zero tax benefits

  • Flipping Investment Properties

This strategy involves purchasing a cheaper, low-quality property and increasing its value by transforming it into an upgraded modern home. In a nutshell, you buy a property for cheap, renovate it in the most financially savvy way and charge higher rent rates or sell it for a higher price.

Pros: increased value even in a stagnant market, potential big profit in a short amount of time

Cons: risk of spending more than planned, risk of losing money instead of earning more

  • Negative Gearing

A property is negatively geared when its expenses are greater than the income it generates. This strategy sounds counterintuitive, but investors use this strategy to intentionally have taxable losses that will reduce tax payables by the end of the year. Negative gearing is best for those who earn high incomes and tend to be in the higher tax brackets. Before you implement this strategy, it is best to consult an accountant.

Pros: claim tax deductions, cover expenses of holding property investments

Cons: need to cover shortfalls to keep holding the property

6. Get a mentor.

Partnering with a mentor can help you know where to start, how to start and who to refer you to. With their experiences and knowledge, mentors can give you solid advice on making real estate-related decisions. Directly learning from an expert also beats looking up answers on the Internet.

7. Build a network of relationships.

By joining a real estate investor group, you can learn from experienced investors. Start by joining any local group of real estate investors and agents. Find people having the same interests and topics that you seek to learn more about. These people can give you recommendations and refer you to mentors, property strategists, real estate agents, inspectors and other professionals.

8. Know your numbers.

Good cash flow management is very important as a beginner real estate investor. Educate yourself with the different costs to consider, including taxes, ongoing costs, renovation and repair costs. Set budgets and timelines, especially for repairs, and make allowances. 

Also, learn about setting rates and prices, monitor your monthly income and see your investments from a business perspective.

9. Choose a property in a location with growth potential.

If you are looking to invest in residential real estate properties, it may be wise to buy in an area with high demands on rental houses. Single-family homes and apartments are the safest, most attractive option for tenants.

Strategic places will be emerging neighbourhoods and in suburbs near transport, schools, universities and other amenities. To check real estate in Balmain and other potential suburbs and areas, you can easily look up online property listings. 

10. Be clear with your investment goals.

Remember that your goal is to generate profit. Before looking for properties to purchase, planning is important. Map out your plans like a businessman would and set key milestones and steps, as well as effective systems for your investments. Calculate the risks and benefits before investing in a property. Having a clear vision can also help you remain aligned and not make hasty decisions along the way.

The Australian property market is a good place to grow your money. As a first-time investor, it is best to gather information that can help you in making well-informed decisions. The tips above are good starting points. 

Keep in mind that it helps to approach property investing with an entrepreneurial mindset. It can be overwhelming at first, but being informed of investment strategies can help you weigh your choices and gain leverage. Be patient, know your goals and start laying your groundwork wisely.

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