Investing in real estate – the Do’s and the Don’ts

Posted on 24 September 2012

Buying an investment property can be very exciting. It should indicate that you are in a solid financial position with access to savings or substantial home equity which will enable you to take that next step in securing your financial future.

However, here are a few things to consider first.

Part 1 – the Dont's

  1. Don’t get caught up in the hype of “everyone is making money in real estate, I should too”. If you really are not in a position to do so, you could be in for significant financial stress by jumping too soon.
  2. If you are new to real estate investing, Don’t plunge in without getting professional advice.
  3. Don’t get fooled by infomercials claiming “no deposit necessary”. This usually leads to higher costs in interest rates and most likely, mortgage insurance.
  4. Don’t narrow your investment choices by not looking at other options. Real Estate investment is not for everyone. Seek professional advice as to what investment is best suited to you and your specific circumstances.
  5. Don’t jump too soon – timing is everything with regards to your financial position and the position of the market.
  6. Don’t underestimate the running costs of an investment property.
  7. Don’t carry more debt than the property can carry. If your investment property is without a tenant for a period of time, will you be able to make the repayments?
  8. Don’t rely on historic information alone or the sellers figures when considering a property’s future potential. Work with the professional team you trust and who are working for a common good – you.
  9. Don’t forget that more often than not, your first real estate investment is the home you live in. At any stage you can choose to reside in it or rent it out. No other investment has that benefit. There can also be large tax free profits when you sell your principle residence if a higher sell price than purchase price is achieved.
  10. Don’t miss an opportunity when the time is right to invest further. Making sure you have checked all of the investment boxes will put you in the driving seat for financial independence in the years to come.

Now read the Do List for more tips.

Part 2 – the Do’s

  1. Do have a good credit rating before you start. You will most likely be wanting to borrow towards your investment and a good credit rating will ensure you access to borrowed funds at the right rate.
  2. Do make sure you have had an overall “check up” of your personal financial situation. Get good advice and ensure your sums add up before jumping in.
  3. Do a budget. Be realistic.
  4. Do have a professional team in place prior to looking for property. This includes a real estate agent, financial advisor / accountant, loan facility contact and lawyer. This places you in a position to move on the right property and close the deal knowing every detail has been covered.
  5. Do enlist the assistance of a real estate team you trust and who you know understand the brief you have given them when locating a property.
  6. Do look for properties in growth corridors – consider public transport, infrastructure and future planning.
  7. Do consider properties in areas which are financially sound but are perhaps undervalued. This allows you the opportunity to improve your investment quickly.
  8. Do look for properties which are structurally sound ugly ducklings located in ideal locations. Inexpensive renovations and updating can add real value quickly for little outlay.
  9. When choosing a property, Do consider looking at the property that is within contact range for you to inspect easily. If in another town or state, you may have the added expense of enlisting a property manager. Experts recommend a two hour window – two hours to drive or if you are able, two hours to fly.
  10. Successful investors save and build their investment portfolios over time. Do your homework. Do be realistic. Do surround yourself with professional advice.

If you need assistance with a purchase, contact the friendly team at Dooley & Associates.