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You’ve probably heard this a thousand times before, but if you are investing in property you need to conduct due diligence. It's a time-consuming process that can take a lot of effort and cost you a lot of money.
Blogger: Sam Saggers, CEO, Positive Real Estate
However, I’ve put together four tips to save you time and money the next time you need to research an investment opportunity.
1. Create a Process
Establish a process that’s easy for you to follow to help you quickly eliminate deals that will not improve your profit line.
For example, if you’re after high capital growth you might choose to only look at blue-chip locations. If you want to renovate then you’ll look in yet another market and at another kind of property(ies).
Gross Yield: Annual rent ÷ purchase price. For example: $10,000 ÷ $100,000 = 10 per cent gross yield
The gross yield needs to be about 10 per cent-plus for cash flow properties.
Net Yield: Annual rent ? property expenses (excluding interest) ÷ purchase price ie:
$10,400 - ($450 + $1,200 + $1,040) ÷ $100,000 ×100 = 7.7 per cent net yield.
In order for the property to deliver positive cash flow, the net yield must be greater than your mortgage interest rate. This is why you must use a realistic interest rate when calculating your yield.
Know the prospective fees you might be looking at in terms of property management fees and stamp duty costs, and use those calculations into your assessment of the viability of a particular deal.
2. Match property type to market
Study your market. More specifically study what the suburb’s demographic is looking for in the area. For example, families will typically be looking for different types of properties than a young professional.
Drop by the area and see what people seem to be doing. Watch the choices they make as they’re walking by, sitting in restaurants and hanging out at the park. This can really help you get a good grasp on what your target demographic is looking for.
For example, if you’re catering towards young families with children, which do you think you’re more likely to find them doing: eating lunch at a high-end restaurant or playing together at the park?
Another option would be to go to a property auction. Study the people in attendance and listen carefully to the chatter. Take note of property features they like or dislike and keep that in mind when choosing your own investment property. Eventually you are going to sell the property, and you want one that will appeal to owner-occupiers.
3. Organise your records and your search process
Organise yourself so you can easily and quickly find the information you need on each property you’re considering, and those you’ve discarded.
This might surprise you, but you should keep track of properties you’ve discarded. You will have looked at so many properties – either on paper or in person – that it can easily get confusing. Keep a short list of properties marked off your list and compare each new sale with that list.
Make good use of the time you spend searching by paying down any bad debt you may have. Bad debt is defined as debt that doesn’t bring in an income such as a credit card debt, personal loan debt, and debt against your principle place of residence (PPR, also known as the family home).
It’s been said that an increased loan capacity of $5,000 to $10,000 can be attributed to every $1,000 worth of bad debt that is reduced. Now this may or may not be accurate, but it is worth noting that reducing your bad debt load will certainly increase your servicing capacity.
4. Get help – hire a buyer’s agent
A buyer’s agent can provide the following time – and money saving benefits:
? They have access to properties not listed on the open market
? They receive remuneration from the developer, reducing or eliminating any cost to you as a buyer
? They can do all the hard legwork for you in terms of due diligence
? They are well versed in negotiations – getting you the best possible deal
? They can save you lots of research time and effort, especially when you’re purchasing a property out of state or you’re new to property investing.
Sam Saggers is the CEO of Positive Real Estate, one of Australia's leading property investment and educational companies and highly sought-after buyers agencies. As a licensed real estate agent in every state of Australia, Sam's passion is assisting people to invest successfully in the Australian property market. He has personally brokered over 1,600 property deals in his fifteen-year career and has helped to educate more than 5,000 people in real estate principles through Positive Real Estate. Sam is the co-author of Think and Grow Rich In Property by Stuart Zadel and How to be in Debt for Millions and Be Happy About it and is currently in the process of writing another book on investing in property in Australia. Sam Saggers is also a keynote speaker on real estate and has recently founded the Property Wholesales Co-operative.