Tips for beginner investors
Tips for beginner investors
Looking to buy your first investment property?
Hoping obtain real wealth through property?
These are tips are critical to the development of a property portfolio. Follow these tips and you will be on your way to seeing real results from your property investing.
Work out your investment strategy before you start purchasing
You first need to educate yourself on all the possible investing strategies in order to establish the strategy that will result in you reaching your goals.
By having your strategy in mind before investing you are able to reverse engineer the property you need to purchase next. E.g if you want 100k in passive income, you might need to purchase 2 million in property that returns 5% net yield therefore you may need to purchase a neutrally geared property to maintain serviceability for future purchases.
Investing strategies may include Investing for cashflow positive, Negative gearing yourself, Investing in high growth properties, Buy and hold, Buy and renovate, Flip and keep, property development, commercial investing or Flip and sell.
Know your numbers
Property investing is is a business with bricks and mortar thrown in the middle!
So its crucial that you treat your portfolio like a business, therefore you need to forecast growth and cashflows as well as upkeep your properties to maintain your tenants desire to live in your property.
It is really important to analyse what type of property you need next in your portfolio whether it be a cashflowing asset to maintain serviceability or a High growing asset in a low yielding area to build up the largest amount of equity possible.
In order to work out the numbers on your investment properties you need to work out the repayments on your property which includes council rates, water rates, insurance, property development and your mortgage repayments. You need to forecast the market rent and compare this to your repayments (with a interest rate rise buffer) to work out whether your property is neutrally, negatively or positively geared.
Increasing your serviceability (borrowing capacity)
In order to get the best out of your investing journey you need to get your borrowing capacity as high as possible to allow the you to leverage into the biggest asset base your financial position allows.
The first thing to increase your serviceability is the lower your discretionary spending. This involves spending money on non essential items and activities. You need to work out the required amount of capital needed for your deposit and reverse engineer this into an amount a week that needs to be saved. Your discretionary spending will be seen by the banks when going for a loan and will be taken into account when trying to borrow for your investment property.
Another aspect of borrowing capacity is your income. This is the main thing lenders take into account when assessing your loan application. You need to focus on increasing your income whether it be through a side hussle like selling things on Amazon or working your way up your current job rankings. In the early days of my investing journey I was driving Uber on weekends and weeknights after work, whilst working overtime whenever possible during my day job.
Keeping your portfolio neutrally to positively geared is also important to maintain serviceability. Balancing your high growth/negatively geared property with High yielding properties will give you the best chance of getting future loans. As banks usually take 75%-80% of your rental income, positively geared properties will be best for middle income owners who don't earn a large amount from their day job.
Gather a team of experts/mentors
Just like a business you need mentors and individuals that have achieved what you want to achieve to follow and learn mistakes from. Mentors can come in the form of Blog writers (like Bez Property), Podcasts and investment books.
You'll need a team that includes investment savvy Mortgage broker, property conveyancer, Buyers agent and a Property manager with a investing background.
A investment savvy mortgage broker over a normal broker will be needed as they are able to see what your purchase will look like in the future and how different loan products will impact future serviceability.
A buyers agent will be crucial as they can purchase the right property at the right price which prevents a poorly performing property from destroying your portfolio. A buyers agent will also ensure a smooth transaction occurs with no hiccups that will coast you money arises.
A property manager who's views around your property aline with your future goals of your property is extremely important. A property manager should advise you of market rent and handle all the upkeep of your investment, therefore a property manager who doesn't look after a lot of properties and knows the importance of good tenants and acceptable rent is needed.
By following these tips and fundamentals your on your way to creating real wealth from property with generational lasting effects on your families wealth position.
Written by Tom King
Director Bez Property Buyers