Property investment can be fraught with worry. The most straightforward piece of advice is don’t do it if you are not the right sort of person. But armed with research, knowledge, patience and perhaps even a little luck, property investment is a fine way of making your hard-earned wealth work hard for you.
Due diligence is key, but don’t over analyse every deal – this might kill the opportunity. However, if you are serious, a little time set aside every day to study the market will never be time wasted. Doing your homework ensures you’ll get an asset with a strong exit value. Don’t let emotion cloud your judgement on a deal. Decide on your key performance indicators, stick by them, and if a potential investment doesn’t meet them, move on.
Take the opportunity to look at market statistics and engage in face-to-face conversations with people in the market. Look out for the opportunity to talk with sales agents, valuers, developers, bankers and other investors – all may well have a different outlook on a given market, to align with their roles and responsibilities.
Also Read: The Pros and Cons of Ready Property Deals
Aim to make your investment with a plan in mind. Whether you want to renovate, develop or hold, always have a plan and timeline for every property you intend to purchase.
When you have narrowed down your (local) options, Visit the target location, spending time there at different occasions (on a weekday, in the evening and at the weekend, for example) exploring the area and what it has to offer.
Always try to get the best deal possible, no matter the market conditions. Never buy something above market value in the hope that historic increases will continue!
A good investor will take into account the complete purchase costs required, along with a solid understanding of the fixed and variable costs required to operate and maintain the asset throughout the proposed investment lifecycle. Remember to factor in ‘worst case scenario’ figures. A robust cash flow projection helps calculate your potential income and assists in the decision whether to proceed or not.
If you are leveraging your portfolio with bank-based debt, take the time to stress-test your cash flow under worst-case scenario conditions. A good real estate investor will create a checklist that takes into account items such as detrimental changes to market conditions that may affect market value and/or rental value. You should ask if there is recent, historic evidence of market values being lower than the level of debt you intend to raise – i.e. could any debt over the property be higher than the property’s value?
Can your primary source of income cover any rental shortfall? The final item on your investor’s checklist should be a consideration and analysis of any potential interest rate hikes versus rental income and operating costs.
The key takeaways here are in order to become a good real estate investor are to detach your decisions from emotion, but research, plan, listen to advice and perform some careful financial projections.