Why it’s important to develop a strategy for buying property before diving in?
Investing in property is a proven pathway to create wealth, but why do so many people get it wrong. Lack of planning. The ownership of an investment property is often glorified by the media, property spruikers and a colleague’s boyfriend at a BBQ telling you how easy it is. The reality is that there is a lot of work and responsibility involved in owning an investment property, let alone knowing what type of property asset is suitable for your particular circumstances.
Before you dive into acquire one of the most expensive assets in your lifetime, it is worthwhile taking a set back and think about what you want to achieve by doing so. Start this process by thinking big picture and determine what long-term objectives you want your property portfolio to achieve. By establishing your goals, you can begin to objectify how your property portfolio needs to perform to achieve these goals.
This exercise will allow you to start forming parameters around what property asset will suit your goals and your current position. While it’s admirable to dream big and the thought of buying 30 properties in next five years might excite you, start by focusing on your property strategy and how your property assets need to perform for you to achieve your goals. There are a number of different strategies for investing in property. It is important to understand the advantages and drawbacks for each property strategy and how they will directly affect you.
Some questions to ask yourself that will help you form your property strategy could include:
- Do I wish to supplement my income, if so within what timeframe?
- Do I want to achieve a high capital growth, if so what capital gains tax am I likely to pay?
- Do I want to renovate and add capital value, if so, what is my budget for renovations and how much value will it add?
- Do I need to reduce my tax, if so is it to the detriment to my short-term cash-flow?
- Do I want to attempt to subdivide or develop, if so do I understand how the development process works and the associated costs?
These are all important things to consider before you embark on your journey into investing in property. Ensure that you think about what you want to achieve from investing in property, doing so will mitigate some of the pitfalls and risks associated with investing in property. Finally, be cautious of where you derive your information and advice from, particularly if you’re not paying for it up front.