It can seem overwhelming when you’re first learning how to invest in property, as there are so many new terms and concepts to understand. To help ease the learning curve, I’d like to suggest three top tips you can use – right out of the gate – to really get your property investing career off and running!
1. Understand Market Drivers
Market drivers are a reflection of market sentiment and the result of actions taken within the marketplace. It’s the old “chicken and the egg” argument. Which comes first: the outlook of a certain area’s residents or government, business and private market decisions?
All you need to know is what the market drivers are revealing about a particular area.
Look for areas that reflect these drivers of capital growth. When you’ve found a potential area, look for properties where you can use strategies to further increase your capital growth such as a renovation.
Is there infrastructure spending – both private and public? How many projects are not only in the planning stages but also under construction?
Can the area demographic support house prices?
Is there a strong demand for housing but the supply is limited? What is the vacancy rate?
What does the job market look like? Are large businesses moving in? What is the commercial vacancy rate?
What are the rental yields for the suburb? Has it seen growth of at least 1% to 2% above the last 5-year yield average?
Look for areas with population growth combined with low/tight supply and you’ll see values rise.
2. Set Up A System
There are lots of properties out there, and not all of them will deliver the profits you’re looking for. It really pays to set up a system – a cheat sheet – that you can use to quickly decide whether a property deserves a closer look.
For example, I use a ‘back of a coaster’ routine. Basically if you’re unable to determine that the property will give you cash-on-cash return within a year, then keep looking!
If I see that I can recycle my deposit then it’s on the short list.
I also take a look at other variables, such as the rents. If they’re strong and moving upward that’s another vote for the property.
3. Time The Market
There are more than 15,000 suburbs in Australia, however, they are not all at the same point in the market cycle. Look for properties in areas that are at the bottom of the market (if you can wait for growth) or if you need to cycle out your capital more quickly, invest in a suburb on the cusp of growth.
You’ll recognise a property market is starting to rise by having a look at the following:
Is the market growing by 2.5% each quarter (totaling up to 10% a year)? If so, this means the market is shifting in the right direction. This can typically take from about 1 to 3 years.
We recommend that you wait until the market has grown by 5% to 10% in the first year – that way you know the market really is taking off.
You’ll notice that the locals aren’t snapping up properties at this point. The market sentiment is still down, but once interstate and international investors start buying properties it can stimulate growth.
Look for auction clearance rates above 50% – this means people are looking to buy.
All of this activity will encourage local investors to jump in and then watch your capital growth take off!
Does the valuation come anywhere close? If not, then check it off your list.
What are the rental returns? If you’re unable to get a good yield, walk away as you risk your ability to service any future properties.
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