If you’re buying your first residential investment property, there are several issues which you need to consider before making any commitments. The name of the game in property investment is “capital risk management”. It’s how you manage your capital that decides whether you win or lose. Property management is a science as much as a form of investment, so much so that there’s now even advanced new property investment software coming on the market and getting a lot of attention from professional property investors.
These are some of the basic issues related to capital management in residential property investments:
- Rates
- Maintenance
- Improvements
- Fittings and fixtures
- Drainage
- Structural upkeep
Some of these are potentially big ticket items on your investment budget. Some properties may need new wiring and plumbing; some may have structural issues costing a fortune to fix. (Put it this way- A single crack in a double brick face can cost up to $100,000. It requires major rebuilding.) You can see why “capital risk management” is such an integral part of any form of property investment.
Best practice for new investors
The best option for new investors is to get professional guidance and to make use of the new property investment software as part of evaluation of investment options. This way you can learn the trade of property investment with backup from real estate professionals and legal guidance. It’s not hard to learn these things, but you really must learn them properly. Seeing the process in practice is a good education in itself. Whether you’re buying residential homes or other types of residential accommodation, this is the machinery of good property investment practice.
When purchasing:
Get a property valuation done. Unless you’re absolutely certain of the price, you may be costing yourself money and missing a better investment opportunity by purchasing. (If you’ve got property valuation software or other real estate software, use this as a quick calculator.)
Start by talking to a lawyer about your conveyancing and the contract of sale. These two elements of purchase are an education in themselves. You need to understand the contract process, particularly the “defects” clause, which can let vendors off the hook for major building problems, and cost you a lot of money.
Get a building inspector (your lawyer can arrange this) and instruct your lawyer to ensure that a thorough inspection is carried out. You need to be on the lookout for any additional costs related to your purchase.
Make an offer under the stated price. This is a simple way of saving money, and may promote a worthwhile negotiation of a lower price.
If you buy at auction, remember the cooling-off period. You can pull out of a purchase during this time, but you need to do your homework on the purchase very efficiently, too, with investment properties.
As you can see, this is all about watching your money and protecting your interests. This is the core business of good property investment, and it’s critical to ensure that you’ve got yourself well covered before you even make your first purchase. Follow these rules and you can’t go far wrong.