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Property investment: The key ‘stops’
Property investment is not a one stop journey; there are several stops one needs to make and experts to visit along the way. The Wakelin Property Advisory Streets Ahead Bus Tour takes you ‘on site’ to explore the six key stops to ensure a sound investment with experts in each field to help guide you.
Stop 1: Finance
The first stop on any investment journey should be finance. When planning your investment, it is important to think strategically, as a little bit of extra time planning, in the beginning, can save a lot of money and heartache in the long run. Before you move any further, you need to have a clear idea of what your budget is, one that gives you a buffer should interest rates rise. Assess how making an investment will impact your cash flow as, in the early years of ownership, borrowing funds to invest usually requires additional cash contributions beyond rental income to cover interest and other holding costs. Consider the different ownership pathways to owning the property and which path you plan to take – own the property solely, jointly with another person, tenants-in-common, in a trust or self-managed super fund.
Stop 2: Asset Selection
This is a key stop and one that makes or breaks an investment. The ideal range for a single investment is between $450,000 and $1.2 million, and it’s your financial capacity, determined at the previous stop of your investment journey, that will dictate what kind of property you choose.
The Wakelin Property Advisory’s “bus” stops at a range of properties to help you pick out the best asset. These assets are found in select 1930s to 1970s apartment blocks – ones with less than 20 units – or in Victorian, Edwardian, or 1930s houses with 2 or 3 bedrooms, usually single fronted and single storey. The tour does not stop in the CBD, St Kilda Rd, Docklands or Southbank as they are not well-suited to residential property investment.
Stop 3: Building Inspections
Wakelin Property Advisory recommends building inspections before buying but what does a building inspection cover? An inspection is a top-to-bottom inspection of a property by a qualified inspector that typically takes an hour or two and the subsequent delivery of a thick report listing findings. With houses, the inspector is firstly looking for structural issues relating to the roof, walls and foundations. The inspector will take a keen interest in the amount, location of and depth of cracking in walls as this can be a symptom of structural issues. Uneven floors and wonky walls may also be indicative of problems with the underpinnings. Considering some of the issues an inspector can find, the sense in obtaining a report despite the cost should be apparent.
Stop 4: Auctions/ Negotiating
The next stop revolves around the actual purchase of the property. There are two primary sales methods used in Victoria: auction and private sale; and knowing how to negotiate in these scenarios is essential. No auction is the same with different agents, different properties, and different market conditions. The best way to get ahead of the competition is to visit several auctions to build a feel for how they work and to learn when to bid and when not to. If a property passes in at auction, your negotiation skills come out to play. Remember to hold the highest bid before it passes in and not to go inside. Private sales also require negotiation and a keen understanding of the market. The key points here are to make sure you know the asking price and the current state of the market. Knowing the current market sentiment is important to validate your offer.
Stop 5: Legal
The legal aspect of the buying process is probably one of the least understood. You want to arrange a good solicitor or conveyancer to help prior to buying. Ask around for recommendations. The conveyancer’s role is to check that a buyer is getting what they are promised in the vendor’s statement. They will review the contract of sale to identify any deficiencies or inconsistencies between what was marketed to the client and what will be ‘conveyed’ to them at settlement. Ideally, you want to give them the contract before the auction so that they have time to look it over and so you can avoid the risk of being dragged through the troublesome process of extracting yourself from a sale with a fatally flawed contract.
Stop 6: Property Management
The final stop is focused on how you manage the property once purchased. There are three main stages of property management – when buying, during the tenancy and when a tenant gives notice – it is important to be aware of what your property manager should be providing in each of these stages. When buying, get a conservative estimate of rental value; negotiate access to arrange tenants, painting, recarpeting or at least arrange a quote with tradies; and meet one to one with a property manager to set rent level/maintenance.
During the tenancy, make sure the property is inspected every six months and schedule a rental review for the first anniversary and every 12 months after that. Put money aside in case of any big renovations or updates are needed to the property.
At some point, your first tenants will give notice to vacate. The challenge is to minimise the amount of time that the property is vacant while also attending to any refurbishment needs. To do this meet with the agent at the property prior to the tenant vacating, determine improvements/costs and ready to go if any required, determine new rent level and negotiate with tenant to provide access.
The Wakelin Property Advisory Streets Ahead Bus Tour is held on Saturdays and takes you “on site” to different properties and auction. The event features independent experts talking to each of these fields. Click here to book your seats.