The process of finding an investment property requires a methodical approach. Comprised within this approach are numerous steps needed in order to purchase a viable investment property. Implementing this step-by-step process may assist an investor in finding an investment property. While, the approach to find a property is important, there are also a couple of considerations to take into account before you commence your search. Unfortunately, some people dive into the property market without planning for the purchase and end up making timely and costly mistakes. The following procedure and considerations will hopefully help you to make better-informed investment decisions.
Education
When investing in stocks, bonds, or other commodities most investors spend countless hours researching before pulling the trigger. Unfortunately, the same principle is not always applied to property investing. Many investors think because they live in a property that gives them sufficient education to make informed investment decisions. This is far from the truth as successful property investors have built their success on having an in-depth understanding of a particular market and investment approach.
So, the first consideration to take into account when searching for an investment property is education. Do you understand what drives property prices? Do you know the difference in the performance of different locations and different construction types? Property investing should not be taken lightly as failure to educate can lead to numerous mistakes.
Goals and ambition
Before purchasing an investor should focus on why they are investing and creating goals. In doing so, the investor can create clarity around what they want to achieve and how they may make this a reality. These concepts should be at the forefront of an investor’s mind before even considering a purchase. Creating clear and precise goals gives the investor something to work towards. It also dictates what investments need to be made in order to achieve the outlined goal. Without goals, an investor is simply investing with no clear path of what they want to achieve. It is important to know why you are investing to determine what investing approach you will employ.
Search for a property
Once an investor has built their education and has clear goals, the next big hurdle is finding an investment property. There are numerous properties on the market in a range of locations. Although not all properties would be considered viable investments. In fact, many properties can be detrimental to an investor’s success. Therefore, an investor needs to be able to identify a quality property in the right location which aligns with their search criteria.
To search for a property, you need to consider properties that align with your criteria. Your strategy, borrowing capacity, and goals will create the basis for your criteria. Once the search profile is created you are then sifting through areas and identifying pockets of suburbs that may suit your criteria. You should be able to narrow down a couple of areas that you are happy to invest in which align with your criteria.
For example, your strategy may be to focus on capital growth. Your criteria may then be to look for a house, around a 600m2 block, above 4% yield within your 500k budget. If this is your criteria, then you search identified areas for properties that meet these requirements.
Start at the state level and work down from here. Then, you can identify if a metro or regional market fits your search criteria. You should cross-reference areas that fit your budget with areas of high demand. This way you eliminate anything outside your budget but also cross off anything that doesn’t demonstrate future growth potential.
Identify a property
When your areas have been identified, you can then identify properties that are houses, 600m2 blocks that fit your yield target. Limit the properties to your 500k and begin to sift through available properties on the market. If there are too many properties you may want to add additional criteria on a specific property in order to reduce the number of listings you view. If there are no available properties you may want to recalculate your search areas to increase the number of markets you will consider purchasing in. By following this approach you can start at a macro level and work your way down to single properties.
Once you have identified a property you will want to do your due diligence. This should include investigating everything you can’t see about the property on the surface. What are the overlays and zoning of a property? In doing so, you can recognise if the property is flood zoned or has any kind of drawback. Research comparable sales to gauge the value of a property and compare this to the listed price. Use Google maps to identify the locality of the property and look at its condition. For example, a property may appear sound but be next to a busy round-about which means poor access. Looking at a property from as many angles as possible will paint the clearest picture.
Inquire about a property
Once you have established the property ticks your boxes it is now time to enquire. A phone call, email, or message to the agent is sufficient to outline your interest. During this time, you may want to consider why the property is being sold, what price the vendor is looking to achieve and interest from other parties. Strong detective skills are required at times to determine the answer to these questions. Once the information is gathered you may then want to inspect the property.
Inspect the property
When going to an inspection there are a couple of things to consider. Firstly, does the property present the same way that you saw it externally? A real estate agent will always try to present a property in the best light. This is your opportunity to ensure the property is the same as it has been marketed. You can also use this time to see if there is anything the agent has failed to disclose or play down. Maybe the property has extensive wear and tear, or the property appears a lot smaller than first thought.
All properties should be at some point inspected visually to ensure you are getting what you paid for. In some circumstances, buyers can put a property under contract before an inspection. This usually takes place in a hot market. Adding a visual inspection clause after the negotiation is also a viable option. The sole purpose of a visual inspection is to cover your tracks and mitigate any potential risks which could not have been seen online.
The verdict
There are numerous steps involved when finding an investment property. Your goals and investing approach will dictate where you begin your search. Once established, you then begin on a national, state, council, and suburb level by sifting through each category to find the best suburbs for your criteria. When the location is identified the buyer then turns their focus to the property itself and making sure it ticks all of the boxes. When this is done inspect the property to ensure it presents the same value as first thought. Once you are happy with the property and are ready to pull the trigger, submit an offer to the agent, and begin the negotiation on your next investment!
