Good day, my name’s Ben Everingham and I’m going to talk about the 14 best tips for buying your first investment property in today’s video. Now, this is going to be a bit of a long one, but an absolute cracker, probably one of the best videos I’ve ever created, so can’t wait to get started with you.
Good day, my name’s Ben Everingham and I’m the director here at Pumped On Property. If you haven’t seen my videos before, please subscribe to our YouTube channel. If you would like to comment on this video, or you’ve got any questions, or you’ve got ideas for future videos, I’d love to hear them.
In today’s video we’re going to talk about the 14 best tips for buying your first investment property. Now, I’m an investor who’s personally bought over $8 million worth of property in the last eight years and I’ve helped my clients buy over $100 million worth of property, so there’s some real gold in this that I wish I knew when I was just getting started buying my first little unit in the south side of Sydney, and can’t wait to get into this video with you.
The first thing you need to do if you’re thinking about buying your first property is go talk to a bank manager or a mortgage broker and find out what your borrowing capacity is. The reason this is important is because you might think you can borrow more than you can, but the price, or what you can borrow is really going to help you define how much you need to save for your deposit and how much you’re going to spend.
If you’re earning $100,000 a year, you might be able to borrow $500,000. If you’re earning $40,000 a year, you might only be able to borrow $150,000 to $200,000, and the thing about borrowing is it’s always changing. There’s two types of times in the finance industry, it’s when there’s easy money, and when there’s hard money and when it contracts, and it’s constantly changing.
The second thing, after you’ve identified your buying capacity, and I recommend you speak to a broker to do that, is to identify how much you want to spend. Just because I could borrow $500,000 for my first property didn’t mean I felt comfortable spending it, so that’s why I went and bought a $360,000 property. I also didn’t have the deposit to buy a $500,000 property at the time either as someone who had just finished uni and was doing my graduate programme with IBM, but identify how much you want to spend.
If it’s an investment property, identify the market, and the type of property you would like to buy, and how much that might cost. If it’s a place that you’re emotionally attached to, and a first home, or a home that you’re looking to buy for yourself, then have a look at what homes, or units, or townhouses in that area are selling for and give yourself a bit of an idea of what it’s going to spend.
Now, if your appetite, which a lot of people’s are these days, is to find a more expensive property, then understanding your borrowing capacity is really, really important, because it needs to match up. You can’t want to buy a $700,000 property but afford $350,000, and then focus on properties that are worth $700,000, because it’s just going to make you upset, so make sure what you want and what you can afford match up. If what you want and what you can afford are different, then bring those into alignment if you still want to buy a property.
The third thing and one of the most important things is to identify a market. This for me is one of the hardest things I had to do when I was first getting started. I think a lot of first timers get overwhelmed by thinking about which market to buy, which suburb, what type of property to buy, and so I’m going to really explain that in today’s video. Please standby, because I think my best two tips in the entire video are towards the end.
But in terms of really understanding the market, a great little hack or a great little inside the industry tip is to Google “HTW Month in Review Report”. Those reports are free and they’re amazing. You can jump on there and have a look at the time that you’re thinking of buying or ready to buy, and you can see where each of the markets in Australia … A market could be a state, a market could be a particular area within a state.
Let’s just pretend that you’re looking to buy New South Wales and you want to buy the Sydney marketplace, then that report will tell you exactly where Sydney’s at at that time of the cycle. Now, nobody gets it right all the time, but these guys produce this report month on month, and that clock that they provide, they provide this awesome little one page clock which shows you where each of the different markets are in and it’ll show you the time that you’re looking.
I like to buy at eight o’clock on the clock, which is the rising or the start of the recovery phase where there’s the most upside in the short-term to make capital growth, and I also like to buy metro property, so Sydney, Melbourne, Brisbane, to make sure that I give myself the best opportunity for long-term returns.
After you’ve identified the market, the fourth thing that you need to do is to identify the suburbs. One of the cool little hacks again, or tips that I like if you don’t want to work with someone like me to help you do it, and to make it really simple for you, and to probably get you as good or a better result than you’d get yourself over the longer term, is to buy a report by a company called Residex. You can just Google them, Residex, and those guys produce a report.
Once you’ve identified the market, which might be Brisbane, or Sydney, or Melbourne, the Best Suburbs Report, and in that report they look at between 50-100 suburbs in Sydney, for example, that are priced between whatever and whatever. It could be $2 million and $300,000, and what they do is they look at the suburbs that are predicted to do the best, and they’ll actually tell you how that suburb’s predicted to perform in the next five and eight years. Again, like everyone in this industry, you’ve got to take it with a grain of salt. It’s not perfect, but they’ve been doing it for a long time now with a lot of success. Again, for $150-$200 it could be a great way for you to find the right suburb for yourself.
Once you’ve found that right suburb, again, as an investor, especially a first timer, you should really only be looking at one suburb at a time. You really need to get your head around that suburb and understand it like the back of your hand to make sure you don’t make any mistakes.
Once you’ve identified the suburb, the fifth thing you need to do is to look at the suburb, look at what you can borrow, look at what you want to live in or buy as an investment, and identify the right type of property. Now, houses for me are my preference, because houses in the last 30 years in Sydney, Melbourne, and Brisbane have most of the time, over 80% of the time, outperformed units. If you’re looking for long-term capital growth and if you’ve got a limited amount of money like I do, then you really want to be in the asset class that performs the best for you over time.
I like to look at houses. If you can’t afford houses, look at something with a land component like a villa or a townhouse. If you can’t afford that, potentially consider a unit in a very small complex that you can control. Without high body corporate things and no hidden things that are coming in the short term.
The sixth thing, I’m going to run out of fingers really soon, is to set some goals and some rules for yourself. It’s important to know where you are and where you would like to be in the future, but even as important as that to me, and if you are interested in helping or having someone help you understand where you are, where you’re looking to go, and to create a bit of a roadmap for you in terms of those next steps, I offer free strategy sessions where you can jump over to my business, www.PumpedOnProperty.com and click the free strategy session button, and you’ll have a session with me or my brother Simon who’s equally awesome I think.
I hope my wife edits that out, but I don’t think she will. I sound like an absolute wanker. But he’s a good dude, and we can help you sit down and look at where you are and where you’d like to go, and really give you that action plan for getting started, and then you can go and do that yourself, or if you’d like some support and you’ve been thinking about this for a while, but your mind is just filled with information overload, or you’re a bit scared of taking that step, we can actually help you do that for a fee as your buyer’s agent.
The rules that I’m talking about once you’ve got that strategy in place are really around what you will buy and what you won’t buy. What I mean there is, let’s say you’ve got the market which is Brisbane, the suburb let’s say is Arana Hills, which is an area I recently bought a property for myself, and then the rules were I needed a 600+ square metre block, I wanted a three bedroom, one bathroom, un-renovated house, at the front of the block with room in the backyard to add a granny flat in the future.
I wanted it on a quiet street in the premium pocket of the suburb where the most expensive sales were. On a road without a bus stop, without any housing commission on it, with other nice owner occupier style properties. These are all rules, which mean your goal as a first time home buyer or investor is to really not buy a product, as opposed to try and buy it. The more rules that you have, the better the result will be for you, because you ignore the 99% of the market that doesn’t make sense for what you need, and you only focus on the 1%.
I also had a rule that I needed a 5% rent return, that I wanted to buy in an area that is predicted to grow by at least 6% per annum over the next eight years, that in the past has grown by at least 5% per annum as well in the last 10 years, which has been pretty slow Brissy. They were my rules and that really helped me get clear and focused on what I wanted to buy, and it was very easy to buy once I had set those rules.
The seventh thing is to do your research. Once you’ve identified the suburb, it’s really about looking at the sold history on www.Domain.com.au and www.RealEstate.com. It’s really about understanding the different things that matter, like rental vacancy rates, like past performance, like total number of sales, like identifying who the top performing agents are, looking at the local schools, looking at the local transport options, and just getting your head around those key indicators that can help you make a better, more educated and logical decision when you buy.
The eighth thing, whoops, I’ve got seven. I can’t work my thumb very well. The eighth thing, this is my left hand, even though it looks different on camera, it just doesn’t work as well I’ve just noticed, looking at myself here. The eighth thing is to start looking, which is the funnest part of buying for me, because once you’ve got the confidence with the market, the suburbs, the type of property, and the research that stacks up, buying property should be so much fun. It only isn’t fun when you’re scared because you haven’t done that research and that due diligence to make sure that you’re confident.
When I’m buying, by the time I’m looking at houses, I am so confident on that area, and so focused, and so knowledgeable, that nothing else matters, and that I know that it’s going to be the right decision. If you go into the purchase with that much confidence, it can really overset some of those, or help you overstep some of those … step over some of those hurdles that you come across. Man, my wife is going to have a field day with this one, but I bet you she’s not editing this stuff out. I’m sorry, guys. I’m joking through it a bit today.
Looking at properties can be done online through www.RealEstate.com and www.Domain.com.au. I like to also identify the top agents in the area, which you can do through Googling “Open Agent”, or www.RateMyAgent.com. You can see who’s selling the most properties and who’s the top performers, and then I like to ring those guys, and then send them an email with what I’m looking for so that they can bring me off market listings as well. Then if you’re in the area, obviously you can duck down there midweek or on the weekends and physically see the properties you really like yourself. If it’s interstate, it can be a little bit more challenging, and sometimes that’s when you work with other people as well.
The ninth thing, I’m going to stop using my fingers because it doesn’t look like they’re working very well, is to don’t believe the agent. There’s so many people in the real estate industry because it’s such an easy industry to get into, and big money can be made that it’s just filled with rubbish. Don’t believe the rental appraisal. If you’re just getting started, not everything they say is true. There are some really, really good ones, but there’s also some really bad agents that don’t care about you, and you’ve got to remember that even if they do care about you, they are legally selling for the other party and legally have to get the best outcome for them.
A lot of agents will go tell you artificially inflated prices. If you’re a first timer, a lot of agents will jack up rental returns to make it look better on paper if you’re thinking about investing. There’s lots of other tricks that they apply, like telling you that there’s other offers on the table, or that they have other people coming in this afternoon from another state that are looking to buy this property and you’ve got to act quick, and it’s all about creating false urgency. It doesn’t matter if you buy this property, but it does matter to them if they sell it, so you always have the upper hand. You can let that property go. Even if it’s a great one, there’ll be another amazing property within a month, I can guarantee it for you.
Now, some of the other little tips or hacks. In terms of the other things you need to consider, in terms of these tips when buying a first property. The 10th, 11th, and 12th parts I’m just going to go through quickly. It’s really about, the 11th part, identifying a good solicitor. You can do that on Google these days, so many companies provide review sites, and you can kind of get an idea of what people are saying about the company before you work with them.
I like to ask what their fees are, what their standard searches are and what they cost, and if it’s going to be a solicitor or a conveyancer working on my behalf. I only work with solicitors. I also like to ask how many of these solutions or how many properties does the company help investors buy each month, and how long have they been in business for. Also, what do they value, and how will they provide me with support. What happens if I’ve got a question, I need to contact them, and how available are they for those types of things.
Once you’ve done the solicitor, the next thing is identifying a great property manager. Again, like anything that’s got humans involved, there’s good ones, there’s bad ones. I like to identify what their fees are, both the fees for the management as well as the other little things that some agencies charge. I like to identify how many properties their property managers actually manage. I don’t like to take on a property manager that really looks after any more than about 80-120 properties, otherwise their workload is too high and they can’t really do the right thing. I like to understand if there’s any problems, will they help me handle them with insurance, etc, as well as how long they’ve been in business, and what their plan is as a business in terms of continuing to grow their book.
I also like to find out how long the property manager has been in the company for. I really like a long-term personal relationship when I’m doing things. That’s the way I run my business, so that’s the way I like to buy off other businesses. A really important thing after you’ve actually bought the property, which is the 12th thing, is to get a building and pest inspection, and this will help you identify if there’s any nasty structural, or termite, or pest-related issues. It can save you an absolute fortune. They can cost between $400 and $1,000 depending on the property, but are worth their weight in absolute gold.
I like to go to the building and pest inspection if I can, or get my buyer’s agent to go to the inspection, and then I also like to read the report and then give the pest inspector and building inspector a call to talk through the report and just say, “If you’re in my position as a first timer, what do I need to look out for?” Were there any serious issues that would stop them buying the property personally, and if there are any issues, how can we address them, and how much is it going to cost me, and what are the priorities in terms of addressing that. It’s like what needs to be done now, and what’s going to last me the next 10 years?
The 13th and one of the final things, I almost put my hands up again to put some numbers out there, is really to not get emotional during this process, and that can be really hard, because I’m sure you’re feeling a bit overwhelmed, there’s a bit of fear around taking that step, there can be analysis paralysis. I’m sure if you’re watching this video, you’ve been watching some of my others, or listening to podcasts, or reading books, and it can sometimes feel a bit blurry up there without a clear strategy and without a clear plan.
Don’t get emotional about this, this is purely logical, which takes me into the last point, 14, and that is really about taking your time. Sometimes slowing down to speed up in this space is all you need to do. It doesn’t matter if property prices are rising if you’re looking to hold the property for the next 15 years, do you know what I mean? If it takes you three more months to buy, but you buy the right property that makes you a lot of extra money over the longer term, then that three months of a small amount of growth you might have lost still means that the longer term picture is going to be fantastic.
Don’t do what 90% of investors do, and rush into the market, and buy some rubbishy property, and then two years later you’ve learnt more, you’re earning more, and you realised you made a mistake when nothing’s changed on that property, and make sure that you don’t suffer from investor fatigue, which is basically this process can be overwhelming and you might burn yourself out because you’re spending every weekend and night looking at properties, on the weekends, at night after work. Don’t burn yourself out. Take a breath, take a few weeks off, and come back to it refreshed.
Don’t make a mistake of if you miss out on a bunch of properties that you really liked, putting an offer in on a property that kind of meets some of your rules and kind of your strategy. This is one of the biggest financial decisions you’re ever going to make, so it’s very important to get it right.
Thank you so much for your time today if you’re still on the video, I know it’s been a long one. Please subscribe to my YouTube channel, I produce heaps of really high quality videos. Can’t wait to hear from you if having a strategy session is something that you’re interested in, and good luck with your first investment or first time owner.