You’re not supposed to fall in love with an investment property.
Investing means looking at dozens, perhaps hundreds, of properties until you find a property that fits your budget and meets your strategy criteria.
I have met investors who actually know this but still go out and spend thousands of dollars more on a property simply because they fell in love with it.
They fell into the owner-occupier trap.
Sure, you don’t want to buy a house that is so unliveable even your 19-year-old student self would have turned up their nose.
But when buying an investment property, numbers are key.
The first 3 things I do when buying a property are:
- Calculate the gross yield.
The calculation for gross yield is (52 x Weekly Rent) / Price. If there aren’t existing tenants, base this on the median suburb rent for the property type. Look at sites like TradeMe to get an idea of what properties like this rent for. Even better, ask a property manager for an appraisal. If it’s sale by tender or auction, the price is the highest price you would offer. - Estimate the cash flow.
Your gross cash flow is the rent times 50 weeks (allow a few weeks for vacancy). Then minus your costs: interest on your loan, maintenance, body corporate (if any), rates, insurance. That gives you an estimate of your net cash flow per annum before tax. - Assess the location.
Is this a desirable location? Is it close to infrastructure and amenity? Is there gentrification likely for the area in the future or are there any future infrastructure plans? Is there a major employer or institution nearby, e.g. a hospital or university? This will help you identify rental demand and growth potential.
None of this assessment is emotional whatsoever. This is a completely objective analysis based on facts wherever possible.
At no point did I ask myself if the property had ‘character’ or if I liked the view from the kitchen window.
At our Property Investor Nights, we teach people how to have that objective eye an investor needs in order to make the best investment decisions.
Come along to your local seminar and find out how you could get better investing results.