Six steps to safe residential property investment

The Smartline Report – September Edition

Six steps to safe residential property investment

Paul Nugent, Director, Wakelin Property Advisory
September 2015

With property investment being a multi-faceted exercise, it is highly demanding of the novice investor. They have to quickly master the arts of asset selection and negotiation, while simultaneously learning finance, settlement, property management and, eventually, portfolio review. The key to scaling this Mount Everest is to break property investment down into its six constituent parts and then to climb these more manageable foothills one by one.

1. Finance

Take care of the finance part of the property investment journey first. It provides great clarity about the budget, which in turn gives a good sense of the sort of property asset to focus on. The main challenge is the sheer variety of mortgages on the market as well as considerations such as whether to fix the interest rate, use of offset accounts, borrowing against one’s home and other assets, cash flow and tax considerations.

In short, find a good independent mortgage broker – like Smartline – one who won’t encourage you to over-borrow. They will work out how much to borrow and the correct structure.

2. Asset selection

Once the financing is clear, apply the tried-and-tested method of asset selection. Investment is about finding and securing scarce assets; where demand greatly outstrips supply. It is this scenario that will deliver strong, consistent capital growth. Generally these properties are found in the inner ring suburbs of our major capital cities. They are older style apartments or houses on quiet, attractive residential streets close to amenity-radiating infrastructure: public transport and good roads; quality schools and other learning centres; and village-like shopping strips and entertainment precincts.

3. Negotiation

Find a suitable property and it’s time to negotiate. It’s much easier when you have a good sense of fair market value. If you’ve done your hard work burning the shoe leather in preceding weeks, you can face the negotiations with confidence. You won’t be flying blind.

The number one rule at auctions is to ensure you have the highest bid if a property is passed in. The highest bidder is in the box seat when it comes to negotiations. Nine times out of 10 they secure the property.

Should you find yourself in an after-auction negotiation, you will probably be invited inside the property. It’s better to remain outside. The agent will find it harder to pressure you and you can see whether anyone else is hanging around who might also want to buy the property.

4. Settlement

Succeed at the negotiations and, congratulations, you have reached stage 4 – settlement. It is perhaps the least understood part of the process. Obtain a recommendation for a good solicitor or conveyancer to do the work. So ask around – well before you are in a position to buy.

5. Property management

Purchasing property will consume a few weeks or perhaps months of your life; managing the property is a long-term commitment.

As soon as you buy a property, the first thing that will likely happen is the vendor’s real estate agent will approach you with their million dollar smile and try and persuade you to use them as the managing agent. It’s a really great day for an agent when they receive a commission for selling and one for managing a property!

Don’t accept easily. Property management is a specialist field. Some agents do it well; most don’t. Again, seek recommendations and interview candidates.

6. Portfolio review

The good news for the novice investor is that the sixth and final step in the property investment odyssey only requires one simple action during the buying campaign: diarise a portfolio review in 12 months’ time and make it a recurrent event.

Once a year consider these items: the property’s financial performance – although you might not see any growth in the first year; cash flow; ensure insurances – landlord and other risks – are current and up-to-date; review capacity to invest again; and sit down with the property manager and review their performance.

Paul Nugent is a director of Wakelin Property Advisory, an independent firm specialising in acquiring residential property for investors. Web: http://wakelin.com.au/; Twitter: @WakelinProperty

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Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2015. Australian Credit Licence Number 385325

 

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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.