Questions To Ask Yourself Before Buying Your First Property
When it comes to property values, people often say the actual house depreciates in value, while it’s the land that appreciates in value.
Some investors with this mindset only want to invest in land and hold onto it, because they believe the building itself will be worthless.
And to an extent, they are right. Generally when you’re buying a new property you’re getting ripped off in some way by a dodgy developer or spruiker.
Say you are buying a new unit in Sydney and it’s costing you $1 million; or you might be buying a house and land package with a granny flat included; or something similar. Generally, the people selling you the properties are being paid a commission of around $40,000 to $60,000.
So when you buy them, they are highly marked up and overpriced and you generally do lose value when you buy the property.
Costs are rising
However, if you have done a renovation anytime recently, you will notice that everything has gone up in price.
The light fittings, the paint, the timber the tiles, the tradies, the labour. It’s all gone up in value. Inflation is pushing up the price to renovate or build that property.
So, the property itself is actually going up in value.
The properties you invest in have a cashflow attached to them, which is increasing as rent goes up and the value of the asset itself is going up. It’s no longer just the land that’s going up in value.
Now that we see there are multiple opportunities to add value across the board, it’s time to choose your strategy. Ask yourself what your goals are. Do you want to buy the property and hold it forever? Do you want to make equity and use it to leverage into future investments? Do you want to flip it for a profit and move onto the next project? It’s important to understand what you want to do before you get started so you can keep your eyes on the prize.
The (extra) price you pay
Investing sounds great when you can get a property for a certain amount of money and then charge a certain amount of rent and it looks like it’s going to be positively geared. But drill down a bit. Have you considered the additional expenses? Property tax, insurance, management fees, strata fees, special levees, maintenance and repairs. Before you start counting your cashflow, all of these costs need to be accounted for.
Do the numbers stack up?
It’s hard for a lot of people to separate their own emotions from property investing. A suburb or town with affordable properties and a tight rental market is perfect, but some people shun those areas as an investment because they wouldn’t want to live there themselves. Newsflash. You don’t have to. There are people living there who are prepared to pay the rent you need to make your investment worthwhile. Remember, this is an investment. You buy it because it makes financial sense and for no other reason. If you were buying shares in a company, you wouldn’t be thinking about whether you’d like to live in that company’s office or factory, so why think any differently about your investment property? The other side of this is choosing a location. You don’t need to drive past an investment property every day. If you are living in Sydney and investment properties are rare and expensive, it might make more sense to buy in Brisbane or Perth. It’s a long way away, but you never have to go there. Property managers will look after it for you.
Please look after my asset
That brings us to the final point. Unless you’ve got all the time in the world and an extensive knowledge of property law, you should have your assets looked after by a property manager.
For a reasonable fee, a property manager will look after the admin, periodic inspections and everything else.
The best property management firm we know of is Blink Property. If you’re looking for management, reach out to the Blink Property team at here.