If you’ve decided to become a real estate investor, then I applaud you. Real estate investing can be very lucrative, especially in Australia where property prices are rising rapidly in many areas. Unfortunately, many investors jump into property investing without giving proper thought to the location of the property and the type of property that will provide them with the best returns.
Investing in the Wrong Property
Real estate investing can be a very lucrative profession, and my personal success is a reflection of this. However, this was not always the case. When I first started in real estate investing more than ten years ago, I made the critical mistake of choosing the wrong type of property in a bad location.
Back then, I didn’t have any relationships with real estate agents and I tried doing everything all by my lonesome. I found a property through a classified ad. It was a two bedroom home in my local area that was over 50 years old. I knew that the home needed some minor repairs, and I figured that I would easily be able to make the repairs myself since it was so close to home. Well, I thought wrong.
The home ended up having severe structural issues that cost much more than I had budgeted for. By the time the structural repairs and all of the other minor repairs were finished, I blew my budget completely out of the water. To make matters worse, I was not able to rent the property out for nearly as much as I had hoped. It took me five years just to be able to recoup the repair expenses before I could start putting a dent in the mortgage I had on the property and build any equity. I now know that I should have chosen a newer three bedroom home in a better neighborhood that commanded top dollar. I call this my rookie mistake.
When budding investors now ask me for advice, I tell them to buy new! You may have to pay a little more for the home up front, but the repairs will be non-existent. A newer home means you won’t have to kiss thousands of dollars away when the air conditioner decides to quit working or the roof caves in after you purchase the property. I learned this the hard way.
Newer homes also command more money and attract better tenants. Tenants will gladly pay you more money each month for living in a freshly built home with all of the latest appliances, aesthetic qualities, and conveniences. You will have so many tenant applications that you’ll be able to hand-pick the best tenant for your new property. You can choose a tenant you know will pay on time and is likely to renew their lease at the end of the term. This will allow you to accurately assess your cash flow and make your life as a real estate investor as stress free as possible.
Look Outside Your Local Area
You may feel more comfortable choosing a property in a nearby area because you’ll feel safe in knowing that it is close by and it’ll be easier to keep an eye on the property, but you’ll be losing out on properties that may be available in areas that have more growth and profit potential. Real estate investing is all about choosing a property that has the best likelihood of appreciating in value and generating the most revenue.
Often, if you take the blinders off and open yourself up to the possibilities that other areas provide, you’ll be able to find an array of investment properties that offer much more growth potential than those in one specific geographic location. For example, if you live in Brisbane, it may be tempting to purchase an investment property there. However, you would be overlooking better profit opportunities in a city like Perth that is experiencing a huge population surge, and as a result, has a property shortage that is driving prices up drastically.
Real estate investment can be extremely profitable, but there are many factors to consider when selecting a property. The profit potential from fixer-uppers may seem intriguing, and it may be more comfortable to choose a property close to home, but take it from me, repairs can be costly and there may be better opportunities outside of your comfort zone.