If there’s one impact that a booming market such as Sydney often has on investors, it’s to inspire action.
Whether you’re a conservative property investor who sits on the fence for the perfect time to invest, or the type of real estate daredevil who thrives on the risk side of the risk-reward ratio, there’s nothing quite like tales of double-digit growth to get you moving.
This in itself can actually be quite a dangerous thing.
An important aspect of property investing is the ability to time your purchase well according to your own internal influences, not external market factors.
This is something that routinely gets overlooked by investors and speculators in a boom market.
For most of us, knowing when to take the leap and purchase a new property can be confusing, stressful and far from an exact science.
We attempt to balance contradictory reports from numerous experts about the state of the market alongside opinions and horror-stories from well-meaning friends.
And let’s not even mention that ever-present pressure to beat the next price boom and get in at the right part of the cycle – all while keeping your own head above water.
It’s little wonder that I’m often asked what the right approach is.
Is it researching the market to time your purchase as closely as possible to the bottom of the market.
Or should you simply aim to get in ASAP and ride the long-term wave of capital growth?
The truth is that neither of those options is ideal… but then again, both of them could work. It really depends on your planning.
THERE’S NO PERFECT TIME
Property investing is dogged by dozens of different variables and although many property spruikers attempt to make it an exact science, the reality is, there will never be a ‘perfect’ time to invest or the ‘perfect’ property to buy.
The way we do this is not via a property cycle clock or timing your purchase to sit snugly within a specific market cycle.That said, there are some principles that can be applied whenever you consider investing in real estate, to ensure that you are as comfortable as possible and exposing yourself to the least amount of risk.
Rather, the only way to manage the stress associated with buying another investment property is by starting at the very beginning: your budget.
Instead of researching a mortgage broker or a real estate agent to get your purchase underway, before then scurrying around trying to cover all your bases while a seller is waiting, you’ll have far more success (and much less stress) by starting with a good ol’ spreadsheet and a calculator.
Not very sexy is it?
That may be the case, but getting acquainted with the numbers can be a very effective strategy for acquiring a profitable property investment.
Remember: the aim here is to remove confusion and stress and that means getting your ducks all in a row.
FIRST COMES YOUR BUDGET
Before you begin dreaming about the type of property you might like to invest in, you’d better make sure it is even possible.
To do this, you need to gain an understanding of the costs involved in property ownership – from the acquisition costs (stamp duty, legals, inspections) to the ongoing costs (property management fees, council rates).
Think realistically about how the expenses of another property will be able to comfortably fit into your budget.
THEN COMES CASH FLOW
When I advise you to run the numbers, I’m not just talking about covering the deposit and the up front costs of your loan – I’m talking about managing the expenses over the long run.
Remember that property is a long-term investment and the last place you want to end up is in a position where you’re forced to offload the property due to poor financial management.
Make sure you have enough of a buffer in your budget to account for extended rental vacancy periods, maintenance and repairs.
NEXT COMES STRATEGY
What is your big picture plan when it comes to investing?
Do you have a goal and a strategy?
If not, now is the time to reverse engineer your end goal with some specifics about how you will get there.
This will help you work out if and where an upcoming property purchase will fit into your portfolio.
AND NOW TIMING GETS A SHOW
Now that all of that heavy lifting is out of the way, it is time to look outside the nest.
In my opinion, strategic real estate investors can make money in any type of market, so timing is not the be all and end all, but researching what the market is doing is never a wasted exercise.
The hardest part about the timing stage is deciding who to listen to – there is always a cacophony of noise surrounding the ‘when to buy’ debate, so I recommend cutting straight to the chase: a buyer’s agent.
Buyers agents are a relatively new phenomenon, but studies have shown that younger buyers in particular are much more willing to trust a buyers agent than a real estate agent.
In this case, it makes perfect sense; they act primarily on your behalf instead of the seller, so you will get a more objective opinion on property values and the state of the market in the area you are looking to buy.
TWEAK AND REVIEW
Now that you have an idea of what you want to purchase and how much you will need, think creatively about the current state of your portfolio.
Is there anything you can do to increase your equity or your cash flow, like refinancing or doing some renovations?
FINALLY – YOU MOVE
With all of these hard yards behind you, you are in a good position to make a decision about whether now is the right time for you to purchase another property.
If everything lines up, it is time to approach a mortgage broker and get pre-approval so you are ready to move when you find the right property.
At the end of the day, there is much more to consider when contemplating an investment property purchase than the stage of a certain city’s market cycle.
Going through this process is a surefire way to ensure that you stay in the driver’s seat and make a smart, financially sound real estate decision.
Resources: WMA PROPERTY