updated 4th October 2016
Investors looking to enter the real estate investment market
will be confronted by many financial factors. These include borrowing capital in the form of a debt instrument such as a home equity loan or business loan.
More costs are associated with investment properties for new entrants, like the cost of refurbishing or rehabilitating a home and the cost of paying a removalist. It is important to conduct due diligence, finding a removalist that offers competitive rates and has a solid reputation for customer satisfaction.
Other considerations are timing. The best time for new entrants into the real estate investment market is when home values are low, writes Tamara E. Holmes of Bankrate.com. During national economic downturns, residential home values drop off, allowing new entrants to gain access to inventory that would otherwise be too expensive. Currently, the “Australian Property bubble” artificially inflates home prices, so real bargains may be hard to locate.
New entrants ought to be aware of their competition, which includes investors from Ireland, Scotland, England and Western Europe, according to Buying Investment Property Tips.com. This flood of outsiders has led to the Australian Property bubble phenomenon, but can mean a profit for shrewd investors.
To get the most out of an investment property, new entrants ought to be prepared to hold the property while empty. The carry cost of an empty rental property or a home being flipped for a profit can quickly eat into the profit margin.
New entrants should interview many real estate agents to make an informed decision which will most aggressively market investment properties. Property management firms are also critical for new investors that choose to rent properties rather than refurbish and flip homes.
Costs to new entrants are the cost of interest for loans, property taxes, landscaping, contractors and other professionals to make properties presentable. This can include new flooring, roof repairs, plumbing and electrical repairs, furnishings, decor and other incidentals.
Investors new to the real estate market
should make a practice of visiting potential properties in person rather than relying on pictures. Though the Internet can provide a lot of information on a particular property, it does not give an investor the feel of the overall neighborhood.
Tour the whole neighborhood to get an idea of its direction. Are there multiple homes noticeably neglected or in a general state of disrepair? Is the home you are looking at priced higher than the comparable listings in the same area? Is the home your considering bigger and does it have more square footage relative to the homes around it? If so, the market won’t support the price tag.
Other considerations are maintenance costs, if the investment property will be rented. Routine maintenance is typically involved, such as pest control and lawn care. But also the costs incurred after a rental tenant leaves the property. The security deposit might not cover having to repaint the interior or replace the flooring.
Speak with professionals that routinely interact with other property investors. New entrants will learn a great deal from a removalist, contractor, real estate brokers and property managers. The experience of these professionals will be enlightening. For instance, investors looking to purchase a property in Melbourne should seek the advice of a Melborne removalist and other service providers in the area – new entrants might find they’re not ready for such a commitment.
Jacob Pettit is a real estate blogger dealing mostly with property investments and ways to maximise their potential. Currently he is interested in removalist Melbourne market and the effects it has on the property values.