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Investing Solutions For Property

Posted in Mortgage Management on 20 Jun 2019

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If you’re reading this article then you may be looking for the best home loan for an investment property, or you may simply be curious about what it takes to start investing in property.

 

Whatever the case, this is the right place to come if you’ve found yourself thinking about starting a property investment campaign.

 

By reading this article you’ve already proven that you want to take this seriously, you’ve been considering it for a while and now you’re researching, which is a great first step.

 

This article will serve to highlight a few key points to remind yourself of when developing a profitable property portfolio, particularly pertaining to purchasing your primary property.

 

Understanding Real Estate

 

When people hear “Real Estate” they generally think that it only means houses.

 

Rather, the term “real estate’ encapsulates a full range of properties on the market, which are separated into four distinct categories:

 

Residential Real Estate

 

Residential real estate is the most common type of property on the market.

 

It mainly consists of new constructions and resale homes but is largely dominated by single or family homes. Other buildings that fall under residential real estate include condos, co-ops, townhouses, duplexes, triple-deckers, quadplexes, high-value homes, multigenerational homes, and holiday homes.

 

Commercial Real Estate

 

Commercial real estate, as the name suggests, is real estate that generates an income, or has the potential to generate a profitable return in the future. It includes shopping centres, strip malls, as well as medical and educational facilities.

 

Apartments can also be considered commercial real estate if you are the owner and landlord of the property rather than a tenant, as it is a property that generates income through the rent you receive.

 

Industrial Real Estate

 

Business owners and the self-employed often purchase industrial real estate for their work and often includes buildings and other properties used to manufacture products such as factories and warehouses.

 

Industrial real estate properties can also be used for research, production, storage, and distribution.

 

Raw Land

 

Though it may seem obvious what is encompassed in this type of real estate, it may surprise you to learn that it’s not just vacant land that comes under the real estate heading of “raw land”.

 

Rather, working farms and ranches can be labelled as raw land, as well as undeveloped land, land in early development, as well as reused lots, sub-divisions, and assembly sites for large manufacturing companies.

 

With these definitions, you can make an informed decision as to what kind of a property you need or want to invest in.

 

However, after investing there is then another primary concern.

 

How do you generate profit from these investments?

 

The Price of Profit

 Man reading business newspaper.

With investment comes a ton of responsibility, and it’s useless to make an investment on a particular kind of property unless you have a plan to generate an income or return on it either immediately through ongoing passive income, or by selling years later at a higher price.

 

The following are the best ways to make sure you generate a good profit from your investments:

 

Residential

 

The first thing you want to do is pick a good location.

 

Choose somewhere in your means, but has either one of these characteristics:

 

  • The area’s market goes up regularly, meaning with time and development you can add substantial value to the property.
  • The rent prices are high enough for you to generate a maintainable and viable income from the property.

 

Bear in mind that the more a neighbourhood develops, the more a particular property is worth. So, keep an eye out for councils that are active in the community, and frequently renovate, and repair their infrastructure, as well as contribute to events and community charities.

 

Also look at the area’s facilities, such as shops, train stations, petrol stations, and any nearby entertainment venues and try to analyse their potential for development in these areas.

 

It’s also important that once you have your property, you continue to renovate and improve it to add value. Even if you have tenants in the property at the time, you can negotiate a convenient time for these renovations to be made.

 

Commercial

 

Just like with residential properties, the commercial property value is determined by location, community and area development, as well as any improvements you make to the property itself.

 

However, something to look out for is that the best commercial real estate is constantly in demand.

 

Industrial

 

Industrial properties are great as they can fulfil a range of purposes, and nearly all of those purposes are in high demand, and quite profitable. Because of their sheer size, they are popular storage spaces and can be hired out as such for regular income.

 

You can capitalise on this by separating a large warehouse into multiple spaces and then charging multiple clients per space.

 

You can also use it to hire out for community meetings, such as a trade show, seminar, church events, or fraternal groups and clubs. Events can also be held in Industrial real estate spaces, such as conventions or concerts.

 

You can rent them out as a business space for a self-employed or business owner to use as their office or place of manufacture, or you can hire it out to a sports business looking to set up a gym.

 

Industrial real estate is great because people expect the price to be high, there is always someone looking for this kind of space, and you can generate high amounts of income regularly.

 

However, it can be time-consuming to find and seal deals on these kinds of property, so it is important to make sure you can afford to enter into it and be prepared for a slow build up.

 

Raw Land

 

Profiting from raw land is tricky, as it requires a good eye and an ability to predict future trends. The main way to profit from land is to buy in a rural area that has a high potential for development in the future.

 

Once it’s developed it can be sold at a higher return, however in the meantime, it falls to you to maintain the land, and you’re not generating any income from the time of purchase to the time of sale.

 

Now that we’ve taken a look at what kind of properties are out there, as well as how to profit from them, let’s talk about the process that is acquiring said properties!

 

Investing

 

Investing isn’t easy and can require years of preparation beforehand. There are ten basic steps to building and developing a portfolio, however.

 

This guide will work on the assumption that you’ve already saved a deposit of $10,000 – $20,000 and are either looking at or have applied for an investment loan.

 

  1. Have a Strategy: Base your investments around an end goal, and purchase properties that will allow you to meet that goal.
  1. Buy a cheap investment property as your first: Either buy a property that is cheap on the market or below its market value. This allows you to maximise your potential reward and minimise your potential loss. Also, as it’s your first it allows you to make mistakes and learn from them and be able to come back from it.
  1. Add value to properties: Have a system of regularly saving money, and then renovating when you’ve saved a particular amount so that you can continuously bump up the price of the property, and therefore the return or rent you can make on it. Adding value can also add to your cash flow and equity.
  1. Establish a positive cash flow: Purchase a property where the monthly income, is higher than the monthly expense – allowing you to service your loans and be able to save for more property in the future, or renovations on your current property.
  1. Positive cash flow and high growth: Regularly increase the value of your property so you can increase the amount you can make from said property.
  1. Have a way of quickly scanning the market: There are many websites and resources that will enable you to regularly check fluctuations in the market, and allow you to buy, improve, or sell properties accordingly.
  1. Leverage your equity: After a year or more of adding value, paying off a mortgage, and saving money – you should have a reasonable amount of equity on your loan. You can leverage this equity to take out another loan allowing you to buy another property, which in turn grants you more equity. This allows you to build a portfolio quickly. It’s important to rinse and repeat the previous steps in this guide while doing this.
  1. Keep an eye on your portfolio: Make sure that you’re taking accurate records. The property doesn’t take care of itself and with neglect comes bad returns. Speak to a real estate agent about what can be done to increase value on your properties and pay attention to your rental manager.
  1. Cut your losses on a dead investment: It makes no sense to keep a property that is costing you more money to maintain than you get from it. If one property is taking money from you than you’re deepening your debt. Cutting your losses early can save more money than holding onto it and waiting for a rise in the market.
  2. Don’t cross-collateralise: Having multiple properties securing one loan can sound like a great idea, but in the end, if things go south you can end up losing far more than you stand to gain by arranging your finances this way. Talk to an accountant about avoiding this, or how best to invest your money, or finance different investment properties with different loans from separate lenders.

 

Call to see how Guardian National Mortgage can help you out!

 

If you need help or advice regarding investing, or if this article has gotten you interested in developing a portfolio, Guardian National Mortgage can help! Simply contact us using our contact page, or calling us on 1300 LOAN STAR.

 

Disclaimer  

The article on this website was correct at the time of writing but lender policies are subject to frequent change. This information is for general purposes only. Whilst we strive to keep our information up to date and correct. We take no responsibility for any loss or inconvenience caused from a person(s) or organisation(s) relying on this information. We recommend you contact us before acting upon any of this material.

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