Investing in real estate can be a game-changer for success, but surely, it is not without its risks.
Over the last several decades, many investors have made costly mistakes in their real estate investment ventures, but there are also those who have overcome the hurdles, navigated the pitfalls and risks with property investments whose determined efforts have paid off.
The Australian property market is highly competitive, with a constant flow of new buyers and sellers.
The high demand for property has caused property prices to skyrocket in recent years, making it difficult for investors to find affordable properties to invest in.
Not only that, the property market is highly volatile, and there are many external factors that can impact the value of your investment.
This makes investing in property a decision not to be taken lightly and without a good investment strategy.
There’s more to real estate investing that simply providing upfront capital.
The challenges in real estate investments
A lot of real estate investors have made the mistake of buying a property based on emotion, rather than basing on data and making sound financial reasoning.
Some investors have made the mistake of overpaying for properties and not achieving the returns they had hoped for.
Moreover, some investors erred by not conducting thorough due diligence before purchasing a property, which led to costly repairs and maintenance that eat into their profits.
There are also investors who failed miserably for not having an exit strategy, leaving them vulnerable to market downturns or unexpected circumstances.
Can such risks be avoided?
Yes, and to overcome the pitfalls and risks of investing in the Australian property market, investors must take a disciplined and strategic approach.
Conduct a thorough market research
Before investing in a property, it is critical that you conduct extensive research on the local market.
Look out for market trends, compare prices, and understand the demand for the type of property you are interested in investing.
Planning and building a roadmap for your investment journey is your first step in forecasting your goals and what strategies will be implementing.
According to a study by CoreLogic, the Australian property market has seen a 10.6% increase in property values over the last 12 months, and as high as 20% in most locations.
While this is a significant increase, investors who followed a disciplined approach to investing and had a clear strategy were able to achieve substantial returns.
For example, in 2019, an investor in Melbourne purchased a two-bedroom apartment for $465,000.
After conducting extensive research and due diligence, the investor renovated the property and listed it for sale six months later.
The property sold for $615,000, resulting in a profit of $150,000.
Devise a clear strategy
Developing a clear investment strategy that outlines your investment goals, budget, and timeline are essential to help you stay focused and avoid making emotional decisions.
Your investment strategy will serve as your guide and reference to keep you on the path towards reaching your desired goals.
For example, an investor in Brisbane purchased a three-bedroom house for $425,000 in 2017.
The investor rented out the property for $450 per week and sold the property in 2021 for $685,000, resulting in a profit of $260,000.
Always conduct due diligence
Before purchasing a property, conduct a thorough inspection and obtain a building and pest inspection report.
This will help you identify any issues that could impact the value of your investment.
Don’t forget to have an exit strategy
It is crucial to determine and understand how you will exit the investment and have a contingency plan in place for unexpected events such as a market downturn or a change in personal circumstances.
Having a fallback strategy is a way to reduce the impact of an investment venture goes bad and you end up getting stuck with the property.
Depending on your situation, there are a number of exit strategies that you can employ. Here are some examples.
Sell the Property – If the property has not appreciated in value as expected or is not generating positive cash flow, selling the property may be the best option.
This can help cut losses and free up capital for other investments. In a market downturn, it may be challenging to sell the property for a profit, so be prepared to take a loss if necessary.
Rent the Property – If selling the property is not an option, consider renting it out to generate income and cover expenses until the market improves. This can help you hold onto the property until you can sell it for a profit or generate positive cash flow.
Refinance or Renegotiate the Mortgage – If the property is not generating enough income to cover the mortgage payments, consider refinancing or renegotiating the mortgage terms with the lender. This can help lower monthly payments and make the investment more sustainable in the short term.
Partner with Another Investor – Consider partnering with another investor who can provide additional capital or expertise to help turn the investment around.
This can help reduce risk and increase the chances of success. Always remember, it’s important to be flexible and open to different options, and to seek professional advice to make an informed decision.
Real estate market trends for guidance
There are several current trends and guides to investing in real estate in Australia that can be used as a guide for would-be investors. Here are some key trends and tips to consider:
Property location is key
Location is still the most important factor to consider when investing in property.
Look for properties in areas with strong population growth, good infrastructure, and close proximity to amenities such as shops, schools, and transport links.
Consider alternative markets
With the high property prices in major cities, consider alternative markets such as regional areas or emerging suburbs with potential for growth.
Focus on a positive cash flow target
When investing in property, it’s important to focus on cash flow, which is the income generated from rent minus expenses such as mortgage payments, property management fees, and maintenance costs.
Aim for positive cash flow properties that generate income from day one.
Use leverage wisely
Property investment can be leveraged with a mortgage, which can increase your potential returns.
However, it’s important to use leverage wisely and avoid taking on too much debt.
Seek professional advice
Consider seeking advice from a professional such as a real estate agent, mortgage broker, or financial planner who can provide guidance on the best investment strategies and help you avoid common mistakes.
Factor tax implications
Understand the tax implications of property investment, such as capital gains tax, negative gearing, and depreciation, and seek advice from a tax professional to maximise your returns.
Secure pre-approval for mortgage
Before starting your property search, it’s important to get pre-approval for a mortgage from a lender.
This will give you a clear idea of how much you can borrow and help you avoid disappointment or wasting time on properties that are out of your budget.
Conclusion
Getting started with property investment can be daunting, but there are several ways to begin your journey.
Start by researching different markets, attending property seminars, and speaking with professionals to gain a better understanding of the property investment landscape in Australia.
Once you have a clear strategy and have identified potential properties, you can begin the process of securing financing and making offers.
Remember to always conduct thorough due diligence and seek professional advice to help you avoid costly mistakes and achieve success in property investment.