Are you considering buying the dip? Our top 5 tips for first time investors

1. Cash flow is king

Most property investment using borrowed funds is cash flow negative at least for the first few years. You need to ensure you have some spare capacity to service the shortfall between the rents coming in and the expenses going out (including loan repayments). You should also have a buffer of funds to allow for any unexpected property repairs and vacancies between tenancies.

2. Talk to your broker to work out the budget

• *Contact us to work out your investment property budget. We will assess your equity position and borrowing capacity.
• *With the budget in mind, we can then work out the optimal loan structures to ensure we maximise your current and future tax deductible debt and that we importantly also ensure your properties are not cross collateralised.
• *Once we have the $$ amounts and structure worked out we can then apply for a pre-approval if you are ready to proceed.

3. Choosing the right property

Often the hardest part! While you could write a book about this topic some key considerations are

• *Avoid properties that are hard to finance. A very small unit under 40m2 or a serviced apartment for example. These have shown to underperform in the long run.
• *Choose locations which have diversified industries. Risks can be hard to identify but seem obvious in hindsight. Even a big city like Perth has in the past been affected by its lack of economic diversity. Prices remained subdued or fell in real terms in Perth from 2006 until 2021 after almost being in line with Sydney prices in 2006. Likewise, Canberra had a big drop many years ago when the new John Howard government slashed the numbers of public servants.
• *Do not buy off the plan properties if you have limited equity or deposit. We would prefer our clients didn’t buy them at all to be honest as the risks outweigh the rewards in most cases. We have seen some good results over the years, but we have also seen quite a few disasters. Reserved for those investors with lots of equity where a low valuation on completion (common) will not be a disaster.
• *Rental yield is important for cash flow but capital growth trumps all. Don’t buy property purely for a high rental yield.
• *Land appreciates in value while buildings depreciate. A simple truth but sometimes forgotten.
• *Look for property that has future development or rezoning upside.
• *Don’t buy specialised investor stock type property. You should be buying a property that appeals to both owner occupiers and investors.

4. Get independant advice

Talking to your accountant and financial advisor to sanity check your plan and that assumption made re cash flow are correct.

5. Consider using a buyers agent

Procrastination or analysis paralysis can stop you moving forward. If that is you or you are time-poor consider using a buyer’s agent in the location you have identified.

We would however caution to avoid buyer’s agents that recommend off the plan properties to their clients as there can be conflicted interests at play.