5 Essential Strategies for Buying Investment Properties

One of the most popular ways to invest in Australia is through investment properties. 

Whether you’re considering a house or a commercial building, investing in property can be an option to increase your wealth and secure your financial future.

However, property investing is not always a sure thing. Plenty of people end up losing money instead of profiting because of bad decisions. If you’re going to invest in a property, you need to know how to effectively manage your investment to avoid suffering losses.

If you make smart, informed choices, your investment property shouldn’t be losing you money – unless this is part of a calculated negative gearing strategy.

If you are planning to rent out your investment property, you can earn rental income and would be entitled to tax deductions. If you are planning to renovate and resell, you may be able to potentially benefit from capital growth and increase your investment returns.

Here are some essential tips to consider when you’re buying an investment property.

1. Buy at the Right Time for the Right Price

The key to investing in real estate is buying a property that is likely to increase in value. It takes patience, research, and timing to get the perfect deal.

Real estate properties can be tricky to price; that’s why you need to keep an eye out for the properties that you’re interested in. There is always a chance to buy the property you want below its actual market value if you’re patient and vigilant. The research will also teach you how to spot good deals.

If you are not confident in selecting a suitable property, you can seek out the services of a buyer’s agent who specialises in the property market and will be able to identify opportunities based on your requirements and act on your behalf throughout the purchase process. Buyer’s agents have extensive market knowledge, access to off-market listings, and the negotiation skills needed to secure favourable terms. Additionally, they can save you time and stress by streamlining the buying process and ensuring that your investment aligns with your long-term financial goals. Your financial adviser should never directly advise you to purchase a specific property, but they can collaborate with your buyer’s agent to ensure your investment strategy is sound.

2. Study Your Numbers

To earn from an investment property, it is crucial that you have a steady and stable cash flow coming in. You won’t be seeing much in returns for your investment while it is unoccupied. However, once you have tenants occupying or living on your property, the rental income will start coming in.

The national rental vacancy rate in Australia is currently at a record low of 1.02%. This tight rental market has contributed to increased rental prices, which rose by 14.6% over the past year, according to DPN’s 2024 Property Market Outlook for Investors. This rise in rental income potential can make property investment more attractive, but it’s essential to ensure you’re financially prepared before diving in.

Just be careful that you don’t buy before you’re financially secure. It will be regretful if you end up selling your property for less than its value or at the wrong time because upkeep has become too expensive. A well-prepared investor will not only focus on acquiring tenants but also on maintaining a solid financial foundation to support their investment in the long run.

Also, remember that you will need to have a cash reserve and budget for rates, property management fees, strata fees (for multi-dwelling properties), as well as potential repairs or ongoing maintenance. Proper financial planning and budgeting are key to ensuring that your property investment remains profitable and sustainable.

 3. Research the Market

Do your due diligence and make sure you know what other properties are available in the area you’re interested in:

• Have a chat with the locals to get helpful information that you won’t otherwise find online.
  Look at the proximity to schools, hospitals, shops, and transport.
  Investigate the crime rate and overall safety of the area.
  Are there plans to build high-density housing in the area?

We asked Tom Haigh of The Australian Property Show who advised “Before buying an investment property in Australia, it’s crucial to research a few key areas. First, understand the local property market trends, including vacancy rates and capital growth potential. Look into the area’s employment rates and infrastructure plans, like new schools or transport links, as these can boost property value over time. Familiarise yourself with the tax implications, such as negative gearing and capital gains tax, to ensure the investment fits your financial goals. Lastly, consider owner occupier and rental demand in the area, as strong demand from owner occupiers can indicate solid potential for capital growth. Rental demand will ensure there is demand from tenants who will help secure consistent rental income.”

 4. Hire a Good Property Manager

Property investing can be done alone, but it opens the door to mistakes and risks. When you buy your investment property, make sure to hire a good property manager. It’s their job to settle and manage things between you and your tenants. Having them with you can guide you towards the right decisions. They can also act as a mediator that lightens the load and allows you to focus on other priorities.

Beyond just handling tenant relations, a property manager can help you navigate the legal complexities and ensure compliance with local regulations. They have the expertise to maintain your property’s condition, minimising the risk of costly repairs in the future. Moreover, their market knowledge enables them to set competitive rental prices, maximising your investment returns. By entrusting your property to a professional, you can enjoy the benefits of passive income without the day-to-day stress of property management.

 5. Invest in Property as part of a Strategic Investment Portfolio

While property investment can be a smart, rewarding financial strategy, it’s important to diversify and consider other investment opportunities as well. Relying solely on property can expose you to market fluctuations, so incorporating a mix of assets like shares, bonds, and managed funds can provide a more stable and resilient financial foundation.

A well-balanced investment portfolio is crucial in safeguarding your wealth against unforeseen economic shifts. By spreading your investments across different asset classes, you reduce the risk of significant loss, as a downturn in one area may be offset by gains in another. This diversification strategy not only protects your investments but also enhances your potential for long-term growth.

Buying an investment property is a potential strategy to increase your wealth and secure your future, but it requires effort, research, strategy, and patience. Property investment can be complex, involving various factors such as location, market trends, and financing options, all of which demand careful consideration and expert guidance. You need the help of professionals you can trust to make informed decisions.

Newcastle Financial Planning Group provides trusted financial advice for people in Newcastle and the Hunter. Our experienced financial advisers work closely with you to develop tailored wealth management and investment strategies that align with your financial goals and risk tolerance.

Take the next step to financial security: Book a Discovery Call today.

References:

https://www.dpn.com.au/articles/2024-property-market-outlook-part-1