A Reality Check Before You Cannonball Into A Property Investment

property investment

There are a few places we could point our finger, from the amount of HGTV reruns that seem to be shown on television to the fact no one wants to rent a property that is just making their landlord rich and a plethora of reasons that sit in between these. Whatever your belief, though, there is one common denominator that cannot be denied and that’s the fact the desire to buy a property is well and truly alive.

However, we’re not just talking about childhood sweethearts that tied the knot a year ago, are now expecting a baby and thus want a home they can call theirs. Nope. That’s because there has been a switch in mindsets in the last few years that has seen buyers want more than just their own home; we’re talking about property investments that are going to make them money along the way too. If you don’t believe us, then how do you explain the fact one in five homes that are purchased is done so as an investment? Mmm hmmm. One in five.

The benefits of becoming a property investor are obviously awesome and there are plenty of blogs out there that will shine a light on these benefits in no uncertain terms. However, there are also a lot of challenges too, the kind that makes this route a lot tougher than you may have first realised. There are risks to weigh up, migraines to overcome and a plethora of other negatives that you will no doubt come across at some point on your journey

 

So, before you go and cannonball into the world of real estate investing, here are some things you need to wrap your head around first.

Coping With The Commitment Financially

This is one of the most important things to work out. Before you do anything else, you need to make sure you can handle the financial commitment involved. That means having a steady income in whatever it is you do; it means having an emergency fund that will let you carry-on as per for at least six months should anything happen; it means having your high-interest debts paid off, and it means knowing how this will affect your retirement goals. Unfortunately, coming to an unbiased conclusion on any of these points can be quite hard because what the heart wants tends to overpower what the head says. As such, we recommend you a) speak to your financial advisor or b) get a financial advisor and take their advice on what you should do.

Calculate The Risk Before Signing Your Name

This is an investment. Period. So don’t rush into it without understanding how it is going to perform, just as you would (read: should) with any other form of financial investment. You need to know what the potential returns are going to be, what the current returns are and which way the market is going. Yes, a property is a good investment for the simple fact it is tangible and serves a purpose aside from building wealth, but that does not mean it is risk-free. If you are going through a specialist property investment group like www.Vystal.com.au, then make sure you listen to what they say and ask all the questions you can about what your returns will be. If you are going solo and just looking to start your portfolio with a single purchase, then make sure the returns are as close to 15% plus as possible. To work out what an estimated ROI is, just look at this article on www.investopedia.com.

Your Secret Weapon Is Your Agent

The trick is to find one that you can trust, implicitly. What? You thought all real estate agents were born equal and that their priority would always be you. Well, if you believe that, then we’re sorry to break the news to you because a lot of agents you meet will simply view you as commission. This isn’t what you want. Oh no. What you want is an agent that will be on your side. Period. Not just that, but you want an agent that you can build a relationship with, someone that maybe has their own rental properties and someone that specialises in this niche. Not only will this help you understand the obligations required and use someone experienced as a sounding board, you will find their local knowledge becomes exponentially important when you are looking at a neighbourhood you are not familiar with.  That last point cannot be stressed enough, actually.

Taxes Become A Whole Lot More Complex

taxes for investment property
taxes for investment property

The second you sign on the dotted line, whether that be signing your own property or with an investment group, make sure your next move is to hire a certified public accountant to help with your taxes because they are about to become your biggest nemesis, no exceptions. You have just entered a new world where you have a major investment, so you will want to track all the expenses that come with it, understand how a repair job differs from a home improvement and know how to tell the authorities whether you made a loss. It isn’t just about being on the defence, though. Quite the contrary in fact. You see, your tax expert-slash-account will also be able to highlight any benefits you are now eligible for, tax deductions being the most obvious one on the list. Of course, what benefits you are eligible for depends on where you live and the type of property investment you have made – residential, full ownership, commercial etc – which is just another reason as to why you need to get an accredited accountant that specialises in this area of the game.

This is by no means an extensive list that will prepare you for every challenge that arises from property investment (we haven’t mentioned how hard it can be to find and keep good tenants, the love they will require or how hard it can settle for something less than your dream home), but it will definitely cushion some of the body blows that tend to crop up along the way. That is for sure.

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