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If you’re new to property investing and want to find your first – or your next – investment property, you may feel a bit overwhelmed. Even seasoned investors struggle to find investment properties that will suit both their budget and their investment plan. Take heart. With just a bit of knowledge – coupled with time and practice – you’ll soon own another investment property and be well on your way to building a solid portfolio.
Begin at the beginning! This may seem obvious but you’d be surprised how many un-seasoned investors jump right into the markets without a solid strategy.
What do I mean by beginning?
1. Determine the kind of returns you need. This will determine the areas you need to focus on.
What kind of property strategy will you need to see a good return on your investment? Which do you need more – positive cash flow or high capital growth? Your strategy will depend greatly upon your individual financial situation, which includes your appetite for risk.
2. Put a short list together of areas that promise to deliver the right results.
Study and learn what drives the market you’re focusing on. Is it population growth as a result of strong economics in the region? If so, dig down a bit deeper and find out what is causing the region to grow and how long the growth should be expected to continue.
Key factors you’ll be looking for include:
- A strong and diversified economy – no “one industry towns” should be on your radar – at all.
- Solid infrastructure spending geared to meet the needs of both the current and future demographic of the area.
- Areas where a majority of the demographic enjoys high incomes.
- Higher yields coupled with a limited supply of available properties.
3. Study the locations on your short list, digging down deep to see what makes them tick.
Ask the following questions when looking at your data:
- What are the industries in the region? Is the entire demographic dependent upon one or two major employers, or are there a large number of businesses in a variety of industries?
- What are the market values and the rental returns in each suburb for houses? For units? Study each suburb until you know them inside and out.
- Where are the “good” streets? The “bad” ones? Note why each street is considered good or bad and study what happens to each over time.
- What is the vacancy rate of each suburb?
- What kinds of properties is the area demographic searching for? What are they willing and/or able to pay?
- Who will your contacts be in the area? Begin building a relationship with quality valuers, real estate agents, mentors, etc. who can be part of your team when you begin investing in the area.
4. Search for deals within your target areas
Opportunities may lie within the “Six D’s” of property ownership events:
- Dummies (uneducated vendors)
- D’Bank (bank owned properties)
- Desperate vendors
- Urgent Sale
- Moving Overseas
- Vendor highly motivated
- Mortgagee Sale
- Trustee sale (inheritance, etc)
- Private sale
- Newspapers, including suburban ones
- Private sales (no agent)
- Divorce and bankruptcy courts
- Run an ad in the paper
- Look for properties which appear to be old and which are owned by older individuals
- Real estate agents who are interested in establishing a business relationship with you
- Have a cheque book at the ready. Nothing encourages a vendor and/or his agent to “make a deal” like the sight of a buyer who is both willing and able to complete a transaction.
- If it suits your strategy, talk of a quick settlement.
- Show that you know what you’re doing – have all of your documents and details ready to go.
- Know ahead of time what you’re willing to pay and don’t let yourself be talked out of it. Show that you’re ready to walk if necessary.
- When you’re inspecting the property show absolutely no emotion.
- Let them know that their property isn’t the only one you’re looking at – you’ve got options.
- Use leverage tools; e.g. median price, comparable properties, etc. to get the deal you need.
- Real Estate Agents and their respective websites
- Newspapers, local and major papers, especially the classified advertisements
- Property Magazines such as the Property Press, the Blue Book, Tommy’s Real Estate Magazine
- Australian websites such as www.domain.com.au, www.realestate.com.au or www.investarsearch.com.au
- District and Regional Council websites
- Council Draft Plans
- Newspapers and Property Magazines such as:
- Property Press
- Real Estate Agency specific magazines
- Local Papers
Words to look for which may indicate a possible deal include:
Where to look and what to look for:
5. Begin putting together offers and negotiating deals
As a buyer, you’re interested in obtaining the best deal possible. A good discount is a fantastic way to create equity going into the deal. Remember that even if the vendor is in a tight place, he or she (and their agent) will be doing their best to ensure they get a great deal as well.
Negotiation is as much an art as is it is a science. Thoroughly researching the property markets and tossing a bit of science (psychology) into the mix will deliver the leverage you need to get the best deal possible, while still taking the high road and not taking advantage of the vendor’s vulnerable state.
Note: A property which looks uncared for may indicate the vendor would be willing to negotiate terms which will be very favourable for you.