G’day. My name’s Ben Everingham and I’m the director here at Pumped on Property. Today we’re going to talk about the 14 best tips for buying your first investment property. Let’s get started.
Fantastic. Thank you so much for jumping on today’s video. For those of you who haven’t seen one of my videos before, my name’s Ben Everingham and I’m the director here at Pumped on Property, where our buyers agents help a significant number of investors, first time and established, buy investment property in the Australian market each month. Today we’re going to talk about the 14 best tips for buying your first investment property. I’m obviously an investor myself and I’ve bought a number of properties over the last seven years. Today I really wanted to walk you through some of the things that I wish I had known a little bit sooner that would’ve saved me a huge amount of time, a lot of stress and a fair bit of money as well.
The first thing I wanted to talk about today is having a goal. When I first started to buy property I didn’t actually have a crystal clear goal or a vision for exactly what it is that I was looking to achieve. There’s two parts to this, I suppose. The first goal that you need to put in place is when you would like to own your investment by. For some of you on today’s video it’s going to be within the next six months. For others it’s going to be within the next 12 months. For others it’s going to be in the next couple of years, but setting a concrete goal in time that you will be at least ready to buy an investment property is a great place to start.
The second thing from there, I suppose, which goes from goals to strategy, is really about getting clear about exactly what it is that you’d like to achieve from that property. This isn’t always easy to do. We’ll come back to this at the end of the video but strategy is super important. To identify the right strategy, I suppose you’ve got to ask yourself what are your short, medium and long term goals. Are you a person that’s looking to walk away from work in the next five years, so passive income’s going to be very important to you, or are you looking to buy and hold over the long term?
By understanding where you’re going, you don’t need a crystal clear vision of where you’re going but at least where you would like to end up is the first place to start. Then reverse engineering that backwards to go, “Okay, am I a high risk or a low risk investor? Am I looking for short term or long term gains? Do I want an un-renovated product or a renovated product? Do I want to buy at market value or below market value?” There’s so many questions that you need to ask yourself. Again, we’ll definitely get back into the whole strategy side of things at the end of today’s video.
The third part of the 14 best tips for buying your first investment property is around research. For me personally I thought I was the king of research when I went out and bought my first property. It took me about six months to do that. The thing was, I bought my first investment property four kilometres from where I grew up. This is a super common experience for investors all over Australia. They buy what they feel comfortable and what they know. What I’m saying is that was okay for me seven years ago when the median unit price in the suburb that I bought in was under $400,000, but now those same units are now worth $600,000, $700,000, $800,0000. It makes it really difficult to get ready to get into a market like that.
In terms of researching, I found a great place to start is the Herron Todd White, HTW, Month End Review Report, which is a free report. You can just type it into Google and it basically provides a clock in terms of where the Australian property market is at any one point in time. By market, I mean the major states and metro markets and original markets in Australia. At 12 o’clock is the top of the clock. That’s when the market is experiencing good growth over the short term period. It’s tapping out there. It’s top of market. At the bottom of the marketplace at six o’clock is a time that I suppose has gone from top of the market and it’s either sat flat or it’s slowly gone backwards over a period of time. It means that it’s bottomed out, prices are as low as they’re going to be in the current cycle then they begin to move forward again.
It’s really important to understand where to buy. I like to buy it between eight and nine o’clock, which is the start of the recovery phase or the rising market phase. That’s a really cool little easy resource. Just jump on the residential part of it. Have a look at the state or multiple states. They produce that report monthly as well, which is really cool. You can keep a finger on the pulses you’re saving towards your goal.
The fourth thing that I wanted to talk about is don’t always believe what you hear. There are so many people in the property industry that shouldn’t be there. There’s also so many people in the property industry that have a vested interest in you buying a particular type of property. You’ve got to remember this: If you’re buying your first property and that’s your first experience with negotiating, with finding the right deal, with doing the research, you can often come from a place that’s overwhelming. You’ve got that feeling of overwhelm or information overload. You might have a bit of fear or a bit of lack of confidence around making the right decision. You’ve got to remember that most real estate agents have been in the game for a long time. They use really sophisticated tactics to obviously get you thinking that there might be a scarcity issue with the property, that there’s somebody else interested in the property, and play all these mind games with you to move forward faster and to obviously ultimately end up paying more with worse conditions.
It’s really, really important to keep your guard up until you can trust somebody. The way to trust that person is not what you hear from them but to do your own due diligence and your own research. Particularly with property agents in general, some of them are super sophisticated, will come across as your friend, but you’ve got to remember at the end of the day they are getting paid by the person selling the property and legally they have to get the highest and best possible price for that client or they can be sued. Whether they’re pretending to be your friend or not or they really are your friend, at the end of the day if they’re serving somebody else and being paid by them, that’s where their motivation lies. It’s important to remember.
The fifth thing that I wanted to talk about is getting the right team in place. Again, it’s taken me seven years to build a world-class team of advisors around me. Now I only work with the best. For example, my mortgage broker’s 40 years of age. He owns between 25 and 40 properties. He won’t tell me how many. He may even own more. I’ve got a great solicitor in place, a great building and pest inspector, a great team of builders, town planners and everybody around me, but that takes time to build. I’m not saying you need the perfect team around you right now for the first purchase, but you definitely need people that are investors themselves and that can take you to where you want to be and can teach you along the way and that are prepared to go that extra mile to give you the knowledge, experience and education that you need to become a successful investor and make the right purchase decision as a first timer.
The sixth thing I wanted to talk about is really this whole conversation is should I use a bank manager that maybe my family have used or that I’ve used for my personal banking, or should I use a mortgage broker? For me, I’ve used both in the past but I’ve found that mortgage brokers provide you with a much more balanced solution. The reason being they’re working on your behalf and they don’t have a vested interest in any type of product on the market.
The problem with going to one bank manager is they can only sell you the product that they have, which is their bank at the interest rates that head office tells them that they’ve got to achieve, where a mortgage broker might look at your overall situation or your long term goals and really set up up, save you some money by getting you a better interest rate, save you some fees and charges and wipes and things. Again, they’re going to be a partner that can take you from where you are now to where you want to be long term. Again, it’s important to keep you guard up. Like everyone, there’s people that are fantastic and there’s people that are not so fantastic. Be careful with who you use. Just make sure that they’re looking out for your best interest long term.
The next thing is this whole conversation again around the solicitor versus the conveyancer. For those of you who haven’t bought a property before, which I assume is a lot of people on this video, a solicitor is basically a licenced lawyer. They’ve physically gone to law school and they’ve done that full law degree. They can not just help you from a property perspective but they can help you from a perspective that if anything happens on that property purchase they might be able to help you get out of it, where a conveyancer, again, has done education but all they do is specialise in property-related transactions. I’ve used, again, solicitors and conveyancers in the past, but knowing what I now know and having helped hundreds of people buy investments properties all over Australia as a buyer’s agent for them, it’s way better when you get into a tight corner or where something changes to have a qualified solicitor behind you because that solicitor, if something bad happens, is going to be more equipped to get you out of that situation than somebody that just specialises in property alone.
Unfortunately sometimes in the property industry things do go wrong. Things don’t always occur they way that you would like them to occur. Sometimes people make mistakes. You’ve just got to be careful. A solicitor is the best possible way to protect yourself. Get them to look over everything you do. That way they take on the liability and that way they’ve got your best interest at heart.
A building and pest inspection is also another crucial part of buying your first investment property. Every single property I buy for myself and for my clients, regardless of how nice they property looks from the outside, because sometimes we all know that makeup dresses things up. It’s the exact same with properties. In terms of getting that building and pest inspection right, you really want to find somebody that’s got 20, 30, 40 years worth of experience doing these things, that’s trusted, that’s proven, that has a good process, that has the right insurances to protect you and themselves as well. You really want to extend that person out to the property and just look behind the curtains and really see what’s going on structurally and from a pest inspection side of things, behind the scenes. They’re the things that you often don’t pick up, especially if you’re inspecting a heap of properties one after the other over a weekend, for example. You might just miss things.
Often these building and pest reports that come back look really bad. Don’t freak out. Make sure you get your solicitor have a look at it. Maybe get a friend who’s a builder to have a look at it. Get a second opinion on it. A lot of the things are just maintenance or small issues, wear and tear, but sometimes they find significant issues like structural issues or pest issues. It can save you thousands of dollars because you can pull out of the contract using that clause if you put it in as a standard clause in your contract.
You can also, if you would still like to move forward with that property, use that building and pest inspection to negotiate a price discount which is one of my favourite things to do because we all know the most vulnerable point or position for a salesperson is after they’ve made the sale and they think it’s done, they’ve moved onto their next deal, but you can use that building and pest inspection to drive the price down. They well know that it’s easier to give you a small price discount and get the sale done than to go to the marketplace and do the open homes and all the activity that they have to do again. It’s a negotiating tool if you know how to use one properly.
Something that I wish I had learned a little bit earlier, because I literally did this for the first four or five properties I bought, and that is just because you feel comfortable in a particular area and you know that area because you grew up there or because you’ve holidayed there or vacationed there, does not mean that that is the right investment property for you and that is the right area that’s going to help you achieve your long term growth. What I mean by that is like I referred before, to the HTW Month End Review Report. You’re an investor now. Whether it’s your first property or your 400th property, you really need to put that investor hat on and make strategic, logical, smart decisions based on the best information and research you can possibly do at the time knowing what you know right now. It’s really, really important to get outside your comfort zone.
Just because you grew up in an area does not mean that that is the right area to go and buy property in. I’m not going to harp too much on this but I think you get where I’m coming from. Like I said, I’ll put my hand up. A lot of the properties that I bought initially were in areas that I grew up in. Luckily I grew up in Sydney. Anybody that bought property down there did okay. It wasn’t a very strategic thing. It was just because that whole market has performed pretty well since the global financial crisis, which ended around 2011.
It’s really important, another point, to make sure you can actually afford to buy the property and you’re not overextending yourself, which is something a lot of first time buyers do. Just because the bank says you can borrow $800,000 with your girlfriend or with your boyfriend or with your wife or your husband or on your own doesn’t mean you should go and spend that money. This is something that I learned very early on. It’s always good to keep a little bit of servicing or a little bit of potential to borrow more money up your sleeve and to potentially use that money for a second purchase or down the the track in the future.