How to plan for your investment property purchase

If you think buying an investment property is just a matter of saving for deposit and then receiving rental income then you’re mistaken! There’s a lot to think about to make sure every penny you spend counts. I had a difficult time when I bought my first investment property, but luckily I didn’t make any big mistake simply because I had a clear plan from the beginning, which I’m going to share with you.

1. Set your target

Are you buying an investment property to create passive income and grow your portoflio in the long term or are you buying just so you can sell in a few years? Are you buying an old house to rennovate and resale in a short period of time (flip) or are you buying property with a big land to build later? There are different strategies but in this article I will just focus on buy-and-hold approach because that’s exactly what I do.

2. Research and understand your market

I highly recommend that you spend time researching the market you want to invest in. Then go to some investment events to get the latest updates in the market and get to know some experienced investors. This is very important! A lot of people failed to do this and simply go with the thinking that “just buy a house with big land and it will grow”. It doesn’t always work that way.

If you come from an Asian country like Vietnam or China, and you now you’re investing in Australian market for example, you should not use the same mindset as investors in your country because the market here is very different. Just have a chat with some investors that you meet, and ask them about different strategies that you can follow.

3. Work out your finance

Unless your family is rich enough to help you buy a property with cash, you should plan your finance carefully. If your salary is not superior and you are still single, I highly suggest that you start doing these at least 3 months before you start searching for your property:

• Get yourself a good broker, ask someone who has purchased properties to recommend one or search for one online with good reviews.
• Assess your income and expense, see if you can cut some costs and find a new job with higher salary, you may even consider living somewhere far from the city and sharing house with other people to reduce the expenses. Have a look at these articles for some money saving tips.
• Work with your broker to find the best loans available to you. I highly recommend that you get pre-approval from a bank before you start making offers.
• Keep in mind that if your deposit is 20% and lower, it’s very likely that you will have negative gearing in the first few years, so it’s worth doing a quick research of average rental price in some of your target areas to get an idea of how much you may pay each month to cover the mortgage.

4. List your criteria

Alrighty, now that you decided your strategy and got your finance in order, time to be more specific. Assuming that you plan to buy a property to hold it for a while, here’s some of the criteria that I found useful in narrowing down your search:

• Area: there are many different areas in a big city. It could be a new area with strong housing development, or it could be an area with houses built from ages ago. Make sure your budget matches the average price.
• Location: if you target young people, where do you think they would want to live? if you target married couples with kids, then what kind of location would attract them? Either way, I would prefer something close to public transport and local supermarket, like 15-minute walk or less.
• New or old house: this could be subjective, but I wouldn’t go with anything older than 15 years. If it’s too old, then you may have to fix a lot of things around the house even when the tenant has moved in for a while. If it’s new, then at least you have builder’s insurance.

Okay, enough with planning, now it’s time to take action, let’s go for a hunt! In the next article I will show you how to find your property effectively.

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