Starting out as a property investor is exciting. Property investment—the strategy whereby you buy one or more properties to fuel your financial goals—is one of the most accessible (and lucrative) investment vehicles available to everyday Australians.
However, many new investors don’t realise the depth and width of skills, strategies and ‘tacit knowledge’ required to run a successful property investment portfolio. How do you know what your legal obligations are? How do you know what a tenant can, and cannot do? And how do you run your investment like, well, an investment… so that its value grows and you generate wealth by owning it?
The answers to these questions are deeply nuanced in their own right. In this article, I want to explain some of our best tips for brand new landlords… so you start your exciting investment journey armed with valuable, actionable information.
Before you purchase your property:
- Before you start applying for a loan, make sure your personal finances are in order. It’s also a good idea to have finance pre-approval up your sleeve. If you’d like our best tips for getting your finances in order, or arranging valuable pre-approval, request a 30-minute Finance Strategy Session with one of our lending experts. Additionally, you’ll benefit from understanding a concept called ‘mortgage serviceability’. You can read more about that here.
- Use data and facts to assess potential properties… and remove all emotion from your decision-making process. Assess a property’s suitability based on its ability to generate a profit, instead of the assessment process you’d use to purchase the home you live in. Questions you can answer are:
- What is the property’s rental yield?
- Are there body corporate or other fees involved in running this property?
- Could I implement a depreciation schedule on the property?
- What is the surrounding suburb’s ‘vacancy rate’?
- What is the suburb’s ‘inventory level’?
- And what is the suburb’s ‘months’ supply’ metric?
- Read more about some of those metrics here.
- Make sure you understand basic negotiation skills. Arm yourself with these strategies and tactics for effective property investment negotiations.
- Consider evaluating distressed properties. A distressed property is a property placed on the market for a quick sale, which may mean it can be purchased under market value. However, distressed properties may be more trouble then they’re worth… read more about them here.
- Evaluate the suitability of a ‘cashflow positive’ investment property for your individual circumstances. Unlike investment properties that require the landlord (that’s you) to contribute to a mortgage each week/month, cashflow positive properties put money back in your pocket each week. Read more about positive cashflow properties here.
- Have a solid team of professionals in place, ready to swing into action when you find a property. As I mentioned earlier, investment property ownership (and the process of hosting a tenant in your property) calls upon many legal and taxation obligations. To ensure these are all covered, you’ll need an accountant, financial planner, conveyancer, buyers’ agent, property manager, insurer, building and pest inspector, quantity surveyor, and a mortgage broker. Read more about all of those here.
- Don’t engage the first property manager you speak with. Interview a couple, and assess their suitability using much more than your gut feel. Read more about our strategies for finding a property manager here.
- Learn the lingo. Try and get up to speed on the language used by your team of experts. Read this here to discover what LVR, LMI, FHB, FHLDS, Low Doc, DTI, ADI, and FHOG mean.
If your initial offer is not accepted, you will usually enter a negotiation process.
After you purchase
- Avoid spending too much on property renovations, unless you think you’ll get back your investment fairly quickly. Remember, a property must generate wealth, instead of the opposite.
- Consider getting landlord insurance. Landlord insurance can cover you for loss of rental income, damage caused by tenants, and more.
- Vet your tenants rigorously. The last thing you want is a tenant who damages your property, upsets the neighbourhood, or pays rent late. Vetting potential tenants it one of the jobs of your property manager, however it’s wise to conduct your own assessment of a shortlisted applicant, too.
- Make sure your property manager is doing their job properly. An under-skilled or under-motivated property manager can do some harm to your property portfolio. As President Ronald Reagan once said, ‘trust, but verify’.
- Conduct regular inspections of your property. This should also be a job for your property manager, however it is also wise for you to stay up to date on the physical status of your asset.
- Increase your rent periodically, in line with market rates. Keep your finger on the pulse and increase rent when appropriate.
- Be reasonable with a late-paying tenant, but not too much. Sometimes people make mistakes, and that’s fair enough. Be understanding if someone pays their rent late once. But if they’re constantly late, you may need to consider other options.
- Look after your tenants. If you find a quiet tenant who pays on time, do your best to keep them.
Get Started By Requesting Your 30-Minute Finance Strategy Session
The quickest and easiest way to prepare finance for your next property is to request a Free 30-Minute Finance Strategy Session during which you will…
- Get an up-to-date picture of the lending landscape including rates, conditions, and how to structure loans for cashflow positive investors
- Gain greater clarity over where you want to be in terms of owning investment properties (and how to structure your loans to get there the fastest, safest way)
- Discover how to unlock the equity in your current properties, so you can build your portfolio – and your wealth – faster (and enjoy a better lifestyle now and in retirement)
- Discover clever, no-cost ways to save money on interest, fees, and charges — immediately
- Learn about our process to find you a better loan that will save you thousands.
This no-obligation session will be held with one of our experienced mortgage brokers.
Please be assured this will not be a thinly disguised sales presentation. On the contrary, you’ll receive our best strategic advice, specific to your situation, so you too can accumulate multiple properties without sacrificing your current lifestyle and accelerate your progress towards wealth.
Please note, the numbers and assumptions listed in this article are for educational purposes only. Individuals should seek specific advice pertaining to their unique situation and the real estate market before making any decisions.
Trilogy Funding Two is a corporate credit representative (Representative Number 506131) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237)