Buying real estate, whether you are buying the family home or an investment, is one of life's most important financial decisions. However, in buying an investment property, it is wise to remember that you are making a business decision. You are not buying from the heart but from the head. You are buying the property because you expect it to appreciate in value. Common mistakes made in investing are that people look for the same things they would want in a home or buy in their local area so they can 'keep an eye on it'.
In searching for a residential investment property it is important to consider three things:
As a business and financial investment decision, it is important to make your purchase in a methodical way:
When investing it is important to assess your current financial position. What are your cash reserves and what equity do you have in your present home? Look at your long term objectives, for example, will the property be part of your retirement financial plan?
Potential changes to your current situation should also be factored in such as the birth of a child or the loss of one income. It is wise to seek advice from an investment adviser or qualified financial planner to help determine goals and strategies.
Some properties provide good rental returns but have little potential for capital growth; for some the converse is true. It is more difficult to find the ideal of high yield and high appreciation potential.
It is important decide on your strategy before you start you search.
You should try to assess the soundness of your investment. Study the capital growth history and the potential rental income.
If you are familiar with computer spreadsheets, try to analyse the impact of an interest rate change or a potential vacancy period.
Professional negotiation can help ensure that you do not pay too much for a desirable property. Negotiation can also include structuring a contract to allow items favourable to the purchaser such as access or installation of tenants.
Sound legal advice will ensure that the contract is fully examined and approved and that any changes are allowable. A good lawyer should be an integral part of your investment strategy.
Professional property management frees you from dealing with tenant issues and gives you more time to concentrate on your portfolio. Your property manager is better suited to negotiate on your behalf should the need arise. He is also in a position to obtain credit checks on potential tenants and has access to trades people. If you prefer not to meet your tenants then a managing real estate agent is definitely recommended.