August 28 2023
"Asking the right questions is paramount to learning and succeeding. As a new property investor, there may be certain topics that you not be even aware of." - Marco Zande, Strategy Executive.
When you first take the plunge into property investing, there are some obvious questions you’ve probably asked yourself.
In fact, you may have even turned to some of the more experienced investors around you for tips and advice.
Questions like:
“What state or suburb should I buy in?”
and
“Should I buy a home or an apartment?”
....are the obvious ones… but what about all the things you haven’t thought to query?
As the saying goes, you don’t know what you don’t know – so if you’re a newbie investor with no idea how the property game works, where do you even start when it comes to asking those less obvious, yet equally critical questions?
Here, I’ll walk you through some of these must-know tidbits, so you can start your property portfolio off on the right foot:
1. What are the other stats beyond the median sale and rent figures – and why do I need to know them?
It’s easy to be swayed by big numbers.
High rents and strong capital growth are important – but these stats only tell part of the story.
To be sure you’re making a sound investment decision, you need to look beyond these obvious indicators and pay attention to the big-picture macroeconomic factors that will lead to capital growth.
- How is the local economy faring?
- Is it leading to job growth which will encourage population growth and in turn rental and capital growth of properties?
- What is the local demographic like? Are they high-income earners with considerable disposable income to spend on properties?
- Is the area gentrifying with old homes being renovated or replaced by new homes, townhouses or apartments?
Then it's time to dig into market metrics such as auction clearance rates, median days on the market, vendor discounting, market depth and rental vacancy rates.
For investors, vacancy rates are especially important – they are essentially an indicator of the supply and demand ratio of tenants to rental stock.
Of course, at present vacancy rates are at historic lows and rents are skyrocketing - and this situation is unlikely to change any time soon.
2. If a property seems like a bargain, is this a good thing?
Sure we're in the beginning of a new cycle at present howvever, there is a severe shortage of A-grade homes and investment-grade properties and these are still being snapped up quickly by keen buyers.
Sure sometimes you’re lucky and find a great property at a bargain price.
But this is pretty rare.
So if the price tag is suspiciously low, you’d be right to question why this is.
Is it the area that is turning people away and driving down prices?
Does the region suffer from low employment levels, high crime or a decline in population?
Or is it the property itself that you need to be wary of… does it lie in a flight path, on a main road, or in a street full of troublesome neighbours?
Fluctuation in the market is normal, but big price dips or an abnormally low price, when compared to the rest of the suburb, may indicate a systemic problem that could derail your investment plans.
Note: Remember...price is what you pay - value is what you get, so a secondary property today will most likely be a secondary underperforming property in the long term.
3. What are the risks?
Nothing is a sure thing, and if a deal seems too good to be true, there’s a good chance that it could very well go belly up.
Before you invest a cent into any property deal, make sure you run through all of the worst-case scenarios, and put plans in place to mitigate them should they occur.
Does this property fit in with your long-term investment strategy?
Do you have financial buffers in place to "buy you time?"
What are the market risks - is there a chance of oversupply in the region?
4. What’s my exit strategy?
If your best-laid plans do fail – and this can happen to even the most prepared and thoughtful amongst us – do you have a contingency plan?
Perhaps in developing your investment strategy, you’ve wagered that the regional property you’ve purchased will make a great family rental, but then the local manufacturing sector takes a hit and families move out of the area in droves.
Could transform the property into a student share-house, or lease it on AirBNB thanks to the amazing wineries and wilderness close by?
Having an exit strategy is like having a safety net to ensure that when one door closes, another one opens – without leaving you broke.
5. Do I have a competitive advantage?
It’s always wise to know your own weaknesses, but sometimes we forget to take our strengths into account too.
If you are a talented DIY-er who can bring the property up to date on a shoestring budget, that could give you a distinct advantage over neighbouring property owners, who have to factor in labour costs when planning a renovation.
Do you have a tonne of equity in your own home, or a stash of cash in the bank to bolster your chances of obtaining finance?
Can you act quickly if a vendor is eager to sell, beating other investors out for the property?
Or perhaps you’re a local with an intimate knowledge of the area?
Don’t sell yourself short – use these strengths to your advantage, and it could see you build a profitable portfolio sooner rather than later.
Source: Property Update