4 Nov 2014

Advice for Buying First Investment Home

I purchased my first home in 2004 when I was 23 years of age. At the time I didn't think it was a big deal. Maybe because it was just something I knew I had to accomplish ... thanks dad. The property and interest rate land scape was very different back then. So although properties weren't as expensive as they are today, I was paying a mortgage with an interest rate of 13% (compared to today's average rate of 5.6%). At the time I complained and questioned why I'm was even doing this to myself, when I could be enjoying my money like every other 23 year old.

Fast forward to 2014 and we've purchased two more homes and sold one in 2011. I don't claim to know everything but I thought I'd share my advice for purchasing your first investment home:

Just Do It
If you've been saving for this big step but worried about whether you can afford the repayments, concern about affordability, unsure of the property market .... stop making excuses for yourself and just do it. Sometimes its not until we get through things do we realise it wasn't as bad as we thought it would be. 

I think back on when we first found out we were going to be parents, and a big worry I had was whether we were financially ready .... seems we're fine. Things work out, you adjust accordingly and the situation is usually not as difficult as you thought it would be.

No Emotional Attachment 
A friend who is looking to buy his first investment home was telling me about his lack of success in finding a potential first investment. He complained about the properties he had seen and he said "I think about if I lived there ...." I stopped him and pointed out what he just said. You should have no emotional attachment to an investment home. You're not buying a property for you to live in. If you were of course you should be very picky, but if it is an investment you should have a different mind set and look out for different things when looking at properties.

Don't Be a Snob
When we were selling one of our investment properties we showed it to a few friends to try and sell it privately. One friend wanted to get her son into property investment and asked us about looking at the house. I ran into her son at a party and mentioned that his mum and I spoke, however his response was different to his mother's and he questioned the area of the property. 

Quietly I was annoyed, offended and thought, "So you think you can afford Cronulla do you?" You need to be realistic. You need to do your homework and look out for potential growth area's, suburbs of blue collared families, find out area's where there are future infrastructure plans, how about buying in another state other than Sydney? - Again its about having an investor mind set.
Buy Cheap
Talking to another potential first time property investor, they mentioned "I've been pre approved for $900,000" You don't want to be paying off a $900K loan, unless its a home you're living in. You want to buy an investment that's as cheap as possible so the repayments aren't taking up too much of income. I actually suggest figuring out the loan repayment on an X amount mortgage, there are many online mortgage repayment calculators but the bank (or building society) you do decide to go with to get your loan should also provide this information to you as well. 

Buy Off The Plan 
Keep an look out for off the plan opportunities. Prices are usually more favourable because the property is yet to be developed. Once the property is complete the value usually goes up, (so you've already made a small amount of profit if you wanted to sell) hence why once finished will drive prices up. Only disadvantage is you don't physically see or get your property until it is complete, but unless you plan to live in it that's not a big deal. 

Think Long Term
Don't be turned off by trends, comments about property prices, suggestions on when's a good time to buy or sell, stories of people who buy property X and sold it two years later for Y amount more. Investments property is considered long term investments ... think years. Any property does increase in value over time, but that time period can vary, and no one can predict how long you need to hold on to a property before it's a good time to sell it. You need to be prepared to be paying off the loan, shouldering the cost of any repairs, insurance, strata fees etc for several years before you may see any return on your investment. 

Speak to People
I naturally always ask for recommendations or advice from people. That's why I reference Trip Advisor when planning a holiday, go to forums like Whirlpool to read people's opinions on a topic or product, and have a Taste account so I can read reviews on recipes before I decide to tackle it. 

I feel the same way about major decisions like getting into property investment. Speak to people who know their stuff and have experience. I've spoke before about people who are in position to give advice but don't have anything to show for it. You should speak to qualified financial experts but also speak to people who have been there and done it. They probably have more insight and information to share based on their personal experience. 

Also be open to paying for quality advice or service too. We all know the saying 'you get what you pay for', so if you're turned off by fees and only want free advice all the time expect you may get poor and cheap service too. 

Have you thought about investing in property? Why haven't you taken the leap yet? Care to share your fears? Have you ever purchased an investment property? What's the one advice or lesson have you would share from your experience?

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