Property Investing 101 - need a lesson or two!

Hi all,

DH and I have been talking about buying an investment property for a while. He is being cautious (as is his way) but I am very keen to get started. We met and married later in life, and I brought with me a sizeable amount of debt from my pervious marriage. I feel like we're behind the 8 ball with ensuring we have a decent retirement and I think property is a safe investment strategy right now.

DH's main concern is that while I have a very good job at the moment, it's contract work and my substantive position is paid at a rate about half what I currently earn. While it looks like I'll be where I am for a while, nothing in life is gauranteed, as we all know. We also are paying a hefty amount in child care, and he would prefer that we waited until our youngest was in school before we committed ourselves to more debt.

But my understanding of property investing is that if you have enough equity on your current home, you can actually finance your investment property so that you have a line of credit to 'tide you over' the time when you may not have the disposable income to cover the cost of holding onto a property. So really, his concerns may not be valid in the larger scheme of things.

So I'm here to ask: who owns investment properties? What are you strategies to tide you over if your income drops? Do you think this is the time to invest? What other advice would you give a novice like me? Is DH right to want to wait, or am I right to want to act now?

Grab yourself a hold of a couple of books if you can:

Michael Yardney - How to Grow a Multi-Million Dollar Property Portfolio. He describes and explains exactly what you have in mind and how to go about it. I have been to one of his seminars and he has some really valuable information. If you google him, you'll probably come across his website too.

Also, Paul Clitheroe's "Making Money" has some excellent advice and templates on cash flow for investing in property. You can make your own up in Excel and play around with interest rates, rental returns, etc over a number of years to see how long it will take you to get from negatively geared to positively geared and more importantly, you'll be able to work out if you can afford the out of pocket expenses.

Hi Sushee :) We bought our first investment property last year, DH has done lots of research (10 years worth before we bit the bullet :o) so I give him all the credit for anything I may write here :lol:!

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What are you strategies to tide you over if your income drops?

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DH says to make sure that you have paid enough off your own home mortgage so that if you hit hard times you can redraw on your mortgage to cover your living/investment property expenses (ideally you want to be able to live for 6-12 months without working if you have to). He also suggests having income protection through your superannuation fund in case you become sick/injured and cannot work.

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Do you think this is the time to invest?

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That's the million dollar question LOL! But long-term, DH says it's best to do it when you are in a position to afford it.

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What other advice would you give a novice like me?

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* Ideally, don't buy in a high-rise building as the value won't appreciate as much as something with more land. Building to land value should ideally be less than 50% - i.e: building worth $200K, land worth $400K - (land appreciates, buildings depreciate). If buying an apartment/flat, try to find one in a building 3 stories high or under.

* Go for scarcity (i.e beach front/art deco/near parkland, etc).

* Look at 100 houses before buying one.

* You should be able to judge the selling price of your property of interest within about 5% (so do lots of research and watch lots of auctions!)

* Get rental insurance (protects against malicious damage and rent defaults).

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Is DH right to want to wait, or am I right to want to act now?

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That's something you need to decide together ;). But it can't hurt to do lots of research now, that might help you make a decision.

Best of luck!

Definitely do some reading. If you are interested in property investment there is no such thing as too much information.

Two books I would recommend that cover off the basics and let you get an idea of what you need to look at in more depth are:
Property investment for Dumbies
Smarter Property Investment, by Peter C ???? (cann't remember the last name).

But there are plenty of books on the market.
I would also advise visiting a property investment forum, reading through all the threads and asking any other questions - they can be a wealth of information. I don't think I am allowed to post other forums on here??? But if you are interested in the name of one that I would recommend, drop me a pm and I will let you know. Otherwise you could try googling 'property investment forum' and then troll through tem until you come across one you like.

Also finding a good mortgage broker is a must, someone who knows about property investment (not all mortgage brokers know as much as they claim) and about structuring your mortgages correctly and tax efficiently - it can be a good idea to talk to a financial advisor who specialises in property investment too, but that is optional ;)

Good luck with it all, property investment has become a passion of mine, but one of the worst things you can do is rush in blind.

who owns investment properties? we purchased an investment property earlier this year. It is a 4 bedroom family home, about 30 years old, but has been extended and has a newish kitchen and bathrooms.

What are you strategies to tide you over if your income drops? I am currently a SAHM, and plan to be for at least another year or two. DH is the only income earner. We have actually paid off most of the loan for our own home, so are therefore putting any extra money into savings- we will access those savings if we need to. We also decided that if worst comes to worse, we simply sell the investment property, and as we own our own home pretty much, and will have some savings, ideally we wouldn't be too much out of pocket.

Do you think this is the time to invest? It was the right time for US to invest. We wanted to buy in our local area, and the purchase prices of homes at the moment are ok, and the rental demand is reasonable strong, and financially we could do it- so we went for it.

What other advice would you give a novice like me? Is DH right to want to wait, or am I right to want to act now? For us, this investment is a long term thing. Without going too much into personal details we have an interest only loan. So we have to pay the bank about $1800 a month. We get $1500 a month in rent, and we make up the difference. The property was purchased in DH's name, as he is working, and it works out better for any tax benefits we may be eligible for. If you and your DH sit down and work it all out, you may find you are only out of pocket a few thousand $$ each year, and ideally you will then on sell the property in 10 years time for a decent profit.

I have to admit I was like your DH- I wasn't too keen on the whole idea at first. But once I established that our own home wasn't at 'risk' if something should go wrong then I was happy to look at the options. TO me, having some security and money available was the main thing- as long as we have emergency money, and are safe in our own home I am happy :)

Like some of the others have mentioned, be careful about the areas you buy in, and remember the rental market you want to attract. If you want to attract uni students, buy somewhere near uni and public transport. If you have a family home like we do, be aware that the majority of applicants will be families with pets. We were also told to avoid high rise buildings, and for us, we wanted to have a house or unit on it's own title- so w can basically do whatever we like with the land down the track. for example, if you buy a unit that has a body corporate, you may find it difficult to renovate, or change the appearance of the property, which could make it more difficult to maybe sell the property in 10 years time.

if you have any more questions, or want to convince your DH let me know :D.