First time trying to invest in a property. Help!

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Schubert
Posts: 54
Joined: Tue Jul 02, 2013 6:56 pm

First time trying to invest in a property. Help!

Post by Schubert »

Hi there,

I am currently earning about $120,000 per year and have saved up a substantial amount. I don’t want my savings to just lie in the bank and one of my friends suggested maybe I should get into property investment. He is doing the same and I can see the effort has really paid off.

But I don’t know anything about investing in properties.

I tried doing a little bit of research but I see property prices in some areas are unbelievably high while for some areas it’s the opposite. It got me even more puzzled.

Can you give me any suggestions about what I should look out for when investing?

Thank you.

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Otto Dargan
Mortgage Specialist
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Location: Sydney, Australia
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Re: First time trying to invest in a property. Help!

Post by Otto Dargan »

Hi Schubert,

Thank you for talking to us.

Investing in properties is a good use of your income/savings. For e.g. investing in rental properties can give you great return because you get a monthly cash flow. However, there are certain factors you need to be aware of while doing so.

We have conducted interviews some of the experts on property investment experts about what elements could possibly affect the property market to help first time investors like you.

According to the experts, the main reasons behind the fluctuations of property market are
  • Economics and employment: It refers to how economically active the market is.
  • Population and demographics: Property market is also driven by the size of the population. A larger population means an active market.
  • Infrastructure and government spending: The existence of public facilities like bus/train stations, schools, hospitals etc.
  • Supply and demand: This is perhaps the major influence behind property market. A greater demand of houses means a greater supply which indicates how active a market is.
  • Location of the property: Properties in urban or metro areas are easy to sell, buy and finance. However, properties in remote locations can find very less potential buyers.
  • Land component of the property: This factor is also equally important to understand because when you are buying a property, you are investing in both the land and building components. Between these two, the value of the building depreciates. Hence, the more you spend on the land component, the better the investment it is for you.
Please feel free to ask more questions.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

gaaRa
Posts: 55
Joined: Fri Jun 28, 2013 3:35 pm

Re: First time trying to invest in a property. Help!

Post by gaaRa »

Hey Otto, I wanted to ask a question about investing in properties located in remote areas. Recently, I applied for a mortgage but the banks declined it by saying it’s too risky because the property was quite far away.

Could you explain a bit more for me because the bank assumed I would understand everything without explaining.

Thanks.

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: First time trying to invest in a property. Help!

Post by Otto Dargan »

Hi gaaRa,

Banks are very cautious about financing properties in remote areas, be it an investment loan or a home loan. One of our experts explains that any property that lies close to the city or the sea is seen as a profitable investment by the banks.

This is because if they have to resell properties in remote locations, there are fewer potential buyers. Even if they do find one, they would need to sell it for a low price which converts as a loss for the banks. Unless they see a really great profit, lenders will try to refrain themselves from approving mortgages for properties situated in remote locations.

The six factors mentioned earlier also play a vital role in manoeuvring the property market.

I hope this has helped you understand.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Schubert
Posts: 54
Joined: Tue Jul 02, 2013 6:56 pm

Re: First time trying to invest in a property. Help!

Post by Schubert »

Hey Otto,

Land component? What’s that? You invest in an apartment complex and then get rental returns from it. And that’s the end of it, isn’t that true?

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: First time trying to invest in a property. Help!

Post by Otto Dargan »

Schubert, when you buy a property, there are two components involved i.e. building and land components. Even when you are buying an apartment complex to rent it out later, you need to pay government fees such as stamp duty or maintenance fees which go to the building component.

Whereas paying for the land component such as land tax means you are investing in the land component. The reason why the experts stress on land component is because it is an appreciating asset unlike the building component.

According to a property investment guru we know, if more than half of what you pay goes into the land component then the better will be your investment.

Property is a long term investment which makes it important that you understand the long term implications of property investment

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Schubert
Posts: 54
Joined: Tue Jul 02, 2013 6:56 pm

Re: First time trying to invest in a property. Help!

Post by Schubert »

Okay, now I get it. Can any of your property investors/experts tell me any secret to making a successful investment strategy?

Thanks.

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: First time trying to invest in a property. Help!

Post by Otto Dargan »

Schubert, most of our property investment experts suggest that the most important factor to remember when planning an investment is RESEARCH.

You must measure each of the mentioned factors carefully as each of them plays a vital role in determining how successful your investment can be.

How active is the property market? What do the demographic reports say? Is the property close to public facilities?
These might be some of the questions you need to think about.

Also, as a first time investor, start with smaller investments before you try to go after the big fish. Through smaller investments you will learn the basics and will grow more confident in to making bigger investments.

If you are still unsure of what you should do, I suggest you talk to one of our mortgage brokers who can give you professional advice. Just talk to us at 1300 889 743 or fill an online enquiry form.

I hope this has been helpful.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Schubert
Posts: 54
Joined: Tue Jul 02, 2013 6:56 pm

Re: First time trying to invest in a property. Help!

Post by Schubert »

Otto, this has indeed helped me understand the concept much better. Thank you a lot. From now, if I have any questions/confusions I know who to ask. :D

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