Plan of attack: First-time investing

Buying your first investment property is a huge financial commitment. How can you make sure you’re not buying a turkey? The answers lie in these three things you must know before you look at a property. Brendan Kelly, director at RESULTS Mentoring, gave his insight into planning your property investment.

1. Know your strategy

The core of successful property investment is a clear strategy. Kelly says this is a ‘big picture’ conversation.

“What are you looking to achieve? Are you looking to supplement your income in retirement?” he asks. “Are you looking to improve your cash flow now or are you trying to improve your equity position and perhaps buy more properties?”

Once you’re clear on the ‘why’, then you can think about the ‘how’, so if you’re seeking cash flow, then you may target cash flow positive properties. If you’re aiming to improve your equity position, perhaps you’ll aim to renovate a property. Either way, you need to be clear about how you’re going to make money from the investment.

2. Know your finances

You should know your numbers inside out before you start browsing Domain listings or step foot into an open house. There are three key elements to planning your budget:

• Your cash position. If it’s your first property purchase, you’ll need to have enough cash to cover the deposit. Even if you’re using equity in your home to cover the deposit, you’ll still need some collateral to cover purchasing costs.
• Your borrowing capacity. Understanding how much can you borrow is critical. It’s pointless looking for a property until you know what you can afford to buy. You can work out your borrowing capacity using this calculator.
• Property purchase costs. Don’t forget to factor in purchasing costs, as well as the headline cost of the investment property. For example, stamp duty can be anything up to five per cent of the purchase price, although help is available for first-time buyers. You also need to take into account legal fees, loan establishment fees and inspection fees, as they all add up.

3. Know the buying process

Each state’s property purchase process is different – you should understand how these work in your state (and others if you’re planning to invest interstate).

Kelly highlights that the process in New South Wales is different to other states, for example. “NSW puts the onus on the buyer to be ready, as contracts are typically unconditional. You need to have all your ducks in a row before putting in an offer,” he says. “Other states can work by conditional contract, meaning you can put in an offer subject to finance or subject to inspection, for example. It’s useful to know what leeway you have in the purchase process, if any.”

The three steps above may seem mundane in comparison to house hunting. However, successful property investing isn’t about falling in love with a house. Following these three steps will put you in good stead to make a wise financial choice.