Like anything else in life, learning how to buy property for investment takes time and effort, but the benefits you’ll receive far outweigh the effort you need to put in.
To help ease the learning curve a bit it’s helpful to have a few hard and fast rules to keep the process moving along towards a great result.
The following 5 rules are followed by countless individuals who have bought property for investment purposes:
1. Pay under market value with add value potential (if possible)
Buying an investment property under market value can be difficult, but it’s not impossible.
To get property at a discount consider the following.:
- Why is the vendor selling? Do they have an offer on another property? (could mean they want to sell quickly)
- Study the market; what makes the property desirable? Is there something that I can do to add value and increase my yield? Is the market bearable and sustainable?
- What blemishes can be used as leverage to get a better price?
- Speak with local agents to get a good feel for the suburb.
2. Look for properties with good yields and cash flow
A property for investment should have a rental return that’s higher than the suburb average.
Look for an investment property with a yield of at least 5% for the best results.
Here’s how to quickly calculate the gross rental yield of an investment property.:
- Weekly rent x weeks in the year = Annual rent/purchase price x 100
- $475 pw x 52 weeks = 24,700/$450,000 x 100 = 5.49% gross yield
Of course your true (net) rental yield will deduct your investment property expenses such as strata fees, utilities, property management fees, etc. from the annual rents.
Annual rent – costs (excl. interest)/purchase price x 100 = net yield
So as you can imagine, the higher your gross yield, the better your net yield will be.
3. Buy property for investment in other cities
New Zealand does not have a single property market.
We have many markets all across the country, each of them with their own individual nuances (e.g. popular suburbs, employment outlook, demographic, etc.).
This is why it’s so important not to get caught up in the claptrap and gloom and doom that permeates so much of the information we come across.
If your backyard is on the tipping point of growth, then by all means invest where you know, but if you really want to experience faster growth, you’ve got to learn how to invest across city lines.
4. Outsource where practical
You’re not simply buying property for investment, you’re building a business.
That’s why it’s vital you make the most of the time that you have available by outsourcing tasks; especially time consuming ones that can be done by someone else.
Following are some examples of tasks you can outsource.:
- Property management
- Cosmetic renovations
- Home staging
- Cleanup and removal services
5. Consider “rent-vesting”; renting while buying investment property
There are both advantages and disadvantages to renting while buying a property for investment.
Following are some pros and cons surrounding this strategy.:
|A smaller deposit can put you into the real estate market faster.||At the mercy of landlord who may want to increase rents or ask you to move out.|
|Buy where you can afford, live where you want.||You can’t make changes to your rental.|
|Tax/income advantages that owning your own home doesn’t offer.|
|Build wealth through capital gains.|
|Flexibility of moving when and where you want.|
These were just some of the tips and strategies that property investors need to learn to grow a strong investment property portfolio.
One of the best things you can do for your property investing business is to find a successful property mentor to help ease the learning curve.
This can speed up your results because you’re not travelling down the wrong path and making mistakes that cost you in both time and money.
If you are interested in discussing similar matters with like-minded property investor people and professional coaches, join us at our next FREE Investor Property Night near you!