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Life as an investor: getting it right from the get go

July 18, 2014

The fate of many a direct residential property investor's overall experience is often set by the first months and even weeks of their initial foray. Those who get off on the right foot as a landlord invariably go on to greater success. But those who encounter troubles at the start frequently never recover from the trauma such that property investment becomes a never-to-be-repeated scar on their psyche.  

The classic downfall is surviving the settlement process but then enduring an unexpected delay in leasing the property for the first time.  A failure to secure a tenant within a few weeks of settlement can be enough to cause significant financial hardship in many instances.  Indeed, it is the fear of this nightmare scenario that discourages many people from even considering direct property investment.

Fortunately, there is plenty a prospective investor can do to minimise the likelihood of this occurrence.  It is all in the planning.

The first step is buy a property which is likely to appeal to a sizeable pool of tenants.  Now those who rent are a diverse bunch with differing needs, but you immediately improve your odds if you focus on a mainstream property in a part of town where there is inherent demand.  Most renters are looking for one or two bedrooms (and occasionally three) in an inner or middle suburb of a major city.  So that’s what you should be offering.  Try to narrow down where you think you’ll feel comfortable investing and, by looking at online real estate rental sites, investigate the predominant styles of property that are on offer.

Once you have a good handle on your target market you can start looking at properties to buy.  At some point you’ll see something you want to buy. The crucial step is to negotiate some special clauses with the selling agent either as part of a private sale treaty or in advance of an auction.

You want to secure, in writing, the permission to reuse the photography prepared for the sales campaign for your subsequent leasing campaign. This saves time and money. You want an agreement for you to show prospective tenants through the property between signing the contract and settlement date. And if you’re planning to do some renovations, you also want early access for your renovator to plan what is required.

A couple of points regarding renovations.  Try to avoid properties that require significant work to bring them up to the standard expected of the rental market. They can be very costly to you in terms of material and labour as well as the loss of income whilst the property is off the market.  Second, renovate in a middle-of-the-road style as this is what appeals to most people most of the time.  Avoid fancy colour schemes – you really can’t go wrong with your whites and beiges.

Setting the right rent is vital to success.  The research you did earlier should help you gauge what is the market rental rate for your property.  Consider shaving ten or twenty dollars a week off this number.  A competitively priced rental is more likely to deliver you a good choice of prospective tenants and the prompt finalising of a tenancy contract than the full rental rate. It is well worth forgoing a few hundred dollars to get this result. Indeed, you may end up well ahead of a similar landlord who over-priced their rental and loses hundreds of dollars every week as it languishes awaiting a suitable occupant.

Aggressive rent setting can be a symptom of people over-extending themselves when they initially bought and requiring an ambitious rent to make the maths of property investment stack up.  Therefore our last piece of advice is to invest cautiously.  Try to have some equity in your investments so that servicing your debt isn’t so onerous that everything must go perfectly for you to succeed. Give yourself some wriggle room and the whole experience will be far more profitable and pleasant.

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