Important things to consider before investing in property
So, your loan application was successful and you’re out on the prowl for an attractive property in a great location. The thought of becoming a property investor is an attractive thing. And it’s a no brainer, why? because property investment, done right, can bring more security and confidence for your future livelihood. It’s also a great way to meet your financial goals in a timely manner.
Even though property investment isn’t the hardest form of investing, it still requires you to do a lot of research, think long-term and have an investment plan.
Unfortunately, when it comes to investing, you have to be wary of emotions. It’s normal to get attached to properties and ambitious investment plans, just knowing that it happens to everyone makes it easier not to feel disappointed when things don’t work out. It also sets you up to make rational decisions instead of emotional ones.
A good rule of thumb is to save up 20% of the total property value to cover the deposit. If you’re not set up to save up the 20%, then you can get a guarantor to use their equity as insurance in case you fail to make payments.
Location plays a big part in whether your property is geared to increase in value. A general rule of thumb is the closer your property to the city centre, the better chance that it’s geared for growth.
What’s your process?
You want to have a process or a system that separates your surplus money from your expense money.
If someone tells you to get into the property market quick, make a killing, and then get out – you should stay away from them. In investment terms, that’s called speculating, and it’s the reason that people get burned when investing. Property investment is a medium to long-term strategy.
What’s your investment style?
There are two investment styles you want to be aware of: growth and yield.
Growth looks at how much the property value will rise over time.
The yield looks at how much the property can make the investor in ongoing rent.
To calculate a property’s yield (before taxes and expenses), you can take the annual rental income and divide it by the property value multiplied by 100.
If your weekly rental income is $400, equalling $20,800 per year on a property value of $500,000; your gross yield is 4.16%.
The difference between searching and researching
Most of the time we think we’re researching, but we’re actually getting caught up browsing.
Browsing lacks intention and has a sense of aimlessness, whereas researching is a focussed approach to uncover the nuances and underlying reasons why something is the way it is.
Don’t fall into the trap of endless browsing.
Make sure you’re researching and not browsing by asking yourself these questions:
- What kind of home are you looking for?
- Why do people want to live in this particular location?
- What kind of house will I be able to afford in this particular location?
- What kind of facilities and infrastructure does the area currently have?
- Is the area positioned for future growth?
You can get answers to all of these questions by contacting a Mortgage House Expert Lending Specialist or request a free property report for your desired location.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of selling your home and are ready to make the next move buying or investing, you can contact us for information about the best options for you when it comes to your mortgage.