First Time Investor? Here's What you Need to Know
Investing in property for the first time is a really big step and can cost you quite a large sum of money, so it’s important to really do your research before you begin.
If you handle your investment correctly and wisely, you can see some serious returns. Here’s what you need to know to make that happen.
Being a Landlord is Hard Work
We’ve all had the unfortunate luck to be paired with a landlord who simply didn’t care about upkeep. Even if you are purchasing a new home, you need to ask yourself if you have the time to be a landlord, because it’s kind of a part-time job. If you’re not the type who likes getting their hands dirty and performing repairs, maybe this isn’t for you. Sure you can hire someone to handle all repairs and problems, but that will take a chunk out of your profits.
Don’t Invest With Debt
If you’re a first time investor, you probably shouldn’t begin if you have any outstanding debts, from student loans or dentist bills, to credit card bills and car loans.
The Down Payment Will Be Larger
If you are simply an owner-occupier, your down payment would likely be much smaller. However, if it’s an investment property, the down payment could be up to 20% of the cost of the property.
So Will the Interest Rates
Interest rates on loans for investment properties tend to be much higher than if you were buying the house to live in. Do your calculations correctly so that your mortgage payment is low enough and doesn’t eat into your monthly profits.
Choose Property Wisely
A first time property investor should be looking at newer, affordable entry level homes. Ideally, you’d want to find a 3 or 4 bedroom home with well thought out living areas that provide functionality for everyday living. These are the homes that would be most appealing to renters including new, small families or young professionals. A low cost home means lower operating expenses and hopefully bigger profits.
View our Now Series for examples of the perfect first time property investor homes.
Calculate Operating Expenses
Understand that your operating expenses will be between 35% and 80% of your gross operating income. You usually end up paying 50% of the rent you charge in total expenses. You’ll need to consider if these profit margins are worth it, especially if you’re paying off a mortgage, as well.
Location is Important
Make sure to research the location where you plan to buy, as well as your target renters. If you’re looking for families, then choose a location that’s next to school districts and parks. If you want young professionals, then inner suburbs with public transport into the city or areas with a growing job market should be on your list.
View some of our home designs to see what type of property you can start investing in. For more information, give McDonald Jones Homes a call today on 1300 555 382 or enquire with our team online.