The end to end process of buying an Investment Property.
While buying an investment property for the first time can be a daunting experience, it can be done entirely on your own. By understanding the steps to buying an investment property, there isn’t really a need for an expensive property buyer agent or consultant.
If you are lacking a little bit of confidence, then here is the perfect start to learn about the end to end process of buying an investment property, along with some tips for buying your first home.
1. Knowing your strategies
The process of buying a property begins with developing your investment strategy. You need to answer a range of questions, including what your passive income target is, how long you need to achieve it, or what the yield of those properties needs to be.
However, the first part of this strategy is knowing your borrowing capacity. This involves going to a good mortgage broker (not the bank directly) who will tell you what you can afford to buy and what yield you want to achieve.
2. Suburb Selection
Once you’ve established your investment strategy and know what you can afford, it’s about selecting the suburb you want to invest in. Suburb selection is all about data. Some people say you should’ve lived in the suburbs to understand it.
Others say that you need a property buyer’s advocate who knows the ins and outs of the suburb before buying an investment property. But really, it’s all about the data. For us, there are about 35 real data factors that need to be considered.
These can be things like average vendor discounting, stock on markets, building approvals, online search interests, and more!
You can take the 15,000 suburbs across Australia, hone them down using a data filter, and develop a shortlist of the suburbs you want to buy in.
3. Selecting the Property
The next step involves deciding where you should be buying in that suburb: what streets and what types of property. Once again, data is your friend. This time it’s about more qualitative data, rather than only quantitative data.
Qualitative data might determine bush fire or flood zones, flight paths, main roads, etc. All this data can be found through a quick Google search or on local council websites. You can hone in on the suburb’s various pockets worth buying in without ever having travelled to the suburb itself.
There is also a set of criteria that you should follow regarding what type of property you should buy. For example, it should be north-facing, away from power lines, not on the main road, a typical bedroom configuration, and more.
A local property manager can conduct inspections on your behalf to ensure that the property meets this criteria.
4. Negotiating, the contract process, and settlement.
You will be required to negotiate the property price. Negotiating can be learned and doesn’t have to be done face-to-face. It’s all pretty straightforward, with a few tips and techniques that are worth understanding to do it yourself.
The conveyancer will hold your hand through the rest of that contract process. In the meantime, your property manager is finding tenants, pre-settlement inspections, and organising an exchange of keys.
5. Getting a depreciation schedule
And finally, a quantity surveyor will conduct a depreciation schedule. This report outlines all available tax depreciation deductions for an investment property. Getting a depreciation schedule will maximise your deductions and allow you to claim everything you’re eligible for.
Some final advice…
Those breaking into property investment often get stuck on where and what to buy. But there are actually a few preliminary questions that need to be answered first, which should also assist you in narrowing down your options when it comes to ‘where and ‘what’ to buy. These include:
- What is your price point (the broker will generally answer this)
- What the yield of those properties needs to be?
- Whether to be active or passive (i.e. look at developing, buy a set or forget)
- Am I open to regional centres or capital cities only? What’s my risk appetite?
While buying an investment property may seem overwhelming, answering these questions and deciding where to buy can all be done on your own. Yes, you’ll need a little bit of help. Education is essential, and using the resources available to you can go a long way.
And brokers, conveyancers, and property managers are necessary elements of the property investment journey. But you really don’t need to spend $15,000 on investment property agents to get the proper assistance.
The great thing about understanding this investment process and doing it yourself is that you can rinse and repeat this process and accumulate multiple properties over time. You can use the same broker, conveyancer, and property management team and repeat the same process.
The big takeaway here is that everyone can invest in property themselves – it just requires a bit of learning. And this guide to buying an investment property is only the beginning! We are all about dissecting the data while giving you the confidence to make the right call and start your property investment journey.