Low interest rates and rapidly rising property prices are driving investors to property investment. Many would-be property investors don't understand the complexities involved and can easily make costly mistakes. Here are some basic principles to follow.
Understand that property investing is a business. It requires planning, discipline, a wide rangeof knowledge, willingness to take calculated risks, and a focus on getting a good return on your investment.
There is no room for emotion in property investment.
Develop your strategy. There are many different approaches to property investment with different financial outcomes. You might choose to:
- Buy property to retain for the long term, buy to renovate and sell, buy to renovate and retain, or be a property developer. - Specialise in certain types of property, such as apartments, properties with multiple tenancies, coastal properties, or low cost housing. - Specialise in a particular geographic area.
Different strategies have different implications for taxation and cash flow.
Get help from a team of experts. As with any other business, you will need an accountant and a lawyer.
It also helps to have good relationships with real estate agents, mortgage brokers, insurance brokers, property managers, property inspectors and tradespeople.
Learn as much as you can before you invest. Read property magazines, learn from other investors and research the areas you are interested in. Practise doing financial analysis on properties for sale so you get a feel for the kind of property that makes a good investment.
Investing is a great way to build wealth because of the principle of leverage - that is, borrowing money to invest. Leverage multiplies the returns you receive on your investment.
Get it right and you could well make a fortune. Get it wrong, and you could lose a fortune. There's a good incentive to stick to the basic principles.
- Liz Koh is an authorised financial adviser. The advice given is general and does not constitute specific advice. A disclosure statement is free. Call 0800 273 847. For free e-books, see moneymax.co.nz and moneymaxcoach.com.
