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6 essential fundamentals for successful property investment | chapter | pg

 This e-Book is a great introduction to the fundamentals of property investing. It pro-
vides straightforward and concise information, which can help you make more informed
decisions when buying or selling investment property.

So whether you are an aspiring property investor considering taking the plunge or an
old hand wanting to brush up your knowledge, this is the place to start.

Property investment is the process where property is purchased, with the intention of
renting it out and/or developing and reselling for a profitable return.

There are many benefits of property investment including;

Generating wealth though rental income and/or capital growth

Tax advantages through depreciation, after-tax tax losses and the resultant reduc-
tion in your personal tax paid
Helping you to create financial security and long term wealth
Allowing you to leverage your equity and borrow against it to buy more property
and grow your portfolio over time

Table of contents

Chapter 1 - Property investment market fundamentals..................pg3

Chapter 2 - Selecting a property investment strategy .....................pg6

Chapter 3 - Building a team to work with..........................................pg11

Chapter 4 - Financing your property investment purchase.............pg15

Chapter 5 - Finding the right location..............................................pg17

Chapter 6 - Negotiating tips ..............................................................pg18

Related resources................................................................................pg20

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6 essential fundamentals for successful property investment | chapter | pg

Chapter 1 -
Property investment
market fundamentals
Real estate cycles
Real estate is a cyclical investment. History shows
that the property market in Australia moves
through a cyclical pattern.
As the market passes through the typical boom
and bust scenarios, outstanding investment op-
portunities are presented to astute and patient
investors who have the tools and strategies in
place to take advantage of the market conditions.
Conversely, some investors who choose not take
a longer term view, may panic during times of
financial volatility and uncertainty characterised
by economic downturns.
The impact of sentiment and confidence
Sentiment plays a significant role during these
bottom of the cycle periods, and the real estate
market can easily be talked down on rumour and
negative media reporting rather than reacting to
factual data.
Property investors must appreciate the Australian
market is made up of countless micro-markets,
each of which responds differently to the various
economic factors.
During a downturn there will always be property
investment opportunities which buck the trend
and can be a worthy addition to your portfolio if
you can find, research and analyse them using ac-
curate, timely data before the rest of the market.
As the market turns upwards, confidence returns,
building approvals rise and the situation can
change quickly.
6 essential fundamentals for successful property investment
If an investor is courageous and clever enough to
dive into the market towards the latter stages of
a market downturn or bust, there are very good
prospects for substantial future capital gains pro-
viding the economic prospects are also positive
in the medium and long-term.
The economy and timing
The health of the economy has a direct impact on
real estate activity levels.
The fallout from a struggling economy in one
location is reflected in rising unemployment. This
can generate a population exodus to areas of bet-
ter employment prospects and reduce demand
for real estate in the area where the economy is
failing.
As confidence returns and the economy picks up,
this population movement can be reversed and
housing demand increases.
Impact of wage levels
Wage levels can also have a bearing on house
prices and dwelling activity.
When household income rises, there is a pros-
pect of the higher wage levels resulting in more
demand for real estate. People may upgrade to
bigger houses and better suburbs and ultimately
higher house prices can result.
There are, however, usually many other factors at
work at the same time.
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| chapter 1 | pg 3
The more liberal availability of funds for housing
in a buoyant economy will reflect increased de-
mand and higher numbers of home loan approv-
als.
With growth in loan approvals comes higher turn-
over of housing stock, and potential for upward
movement in house prices. Ultimately, price levels
represent home-buyers and investors capacities
to meet the market from an affordability and debt
servicing viewpoint.
If credit is easily available and interest rates are
low, the market flourishes and prices tend to
move higher with the increased activity and de-
mand.
Impact of interest rates
Interest rates represent your income as a deposi-
tor or your cost of funds as a borrower.
The level of interest rates will dictate to some ex-
tent the capacity and enthusiasm of investors to
purchase real estate. Periods of high interest rates
can occur at the end of a long sustained period of
economic growth and the subsequent inflation-
ary pressure on the economy.
The RBA (Reserve Bank of Australia) will increase
the OCR (Official Cash Rate) steadily with the
aim of slowing the property market activity. The
increased borrowing costs eventually result in
reduced buyer demand and sales activity in the
property market followed by lower numbers of
building approvals and downward pressure on
property prices.
When the economy slows, the RBA does the op-
posite and reduces the OCR. When interest rates
are comparatively low, it is the Reserve Banks
6 essential fundamentals for successful property investment
intention that housing affordability improves,
buyer and investor demand will pick up, and the
market receives fresh demand and upward pres-
sure on prices.
While the Reserve Bank sets the prevailing official
cash rate, interest rates for home finance are also
influenced by market forces, both local and inter-
national, and as a consequence banks will require
smaller or larger lending margins depending on
market risk factors, creating additional volatility
in interest rate levels.
Demand for credit
The demand for credit and the level of funds
available for lending will have an impact on rates.
If money supply is restricted to property develop-
ers and investors, it can suppress the property
market and hold back growth longer, pushing up
rents and rental yields in the short term.
When there is plenty of money to lend and strong
competition amongst lenders, rates and lending
margins will tend to fall.
High inflation tends to lead to rising interest
rates. If the rate of annual inflation starts to climb
above Reserve Bank targets, the Bank will typi-
cally dampen down demand by raising the cash
rate, and by default, home loan interest rates will
increase. When the economy starts to slow, rates
can be reduced to stimulate growth activity.
With a more deregulated and global financial
system, our interest rates can also be affected
by overseas rates - if local deposit rates are un-
competitive, funds can move to more attractive
deposit options in other countries. If Australian
rates are comparatively lower, overseas cash will
not find its way into our markets.
Currency fluctuations
Currency fluctuations will have an effect on inter-
est rates too. As the value of the Australian dollar
falls, the Reserve Bank can act to reduce money
supply which has the effect of increasing rates as
available loan funds dry up.
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| chapter 1 | pg 4
The theory is that higher rates will attract invest-
ment from offshore and support the currency. Its
a delicate balancing act - if rates are set too high
and consumers start saving and stop spending, a
recession can follow.
Supply vs. demand
Supply and demand is one of the most funda-
mental concepts of economics and the corner-
stone of a market economy.
What is demand?
Demand refers to how much (quantity) of a prod-
uct or service is desired by buyers.
The quantity demanded is the amount of a prod-
uct consumers are willing to buy at a certain
price. The relationship between price and quan-
tity demanded is known as the demand relation-
ship.
What is supply?
Supply represents how much the market can of-
fer. The quantity supplied refers to the amount of
a certain good (in this case real estate) vendors
are willing to supply when receiving a certain
price.
The correlation between price and how much of
a good is supplied to the market is known as the
supply relationship. Price, therefore, is a reflection
of supply and demand.
How supply and demand relates to
property investment
When considering the location of your next in-
vestment property, give thought to the supply of
and demand for property in the area.
Is it a buyers or sellers market?
Demand and supply within a market has a direct
impact on price.
But how do you determine the state of the micro-
climatic conditions of the suburb where your
target property resides?
6 essential fundamentals for successful property investment
Here are some factors that you should consider;
Average property days on the market /
auction clearance rates - Tracking these
figures help ascertain the current supply and
demand for property in a locality. Where de-
mand for property consistently, over the long
term, outstrips the available supply, prices will
tend to rise.
How long your target property has been
on the market for Real estate that is taking
a long time to sell can mean a lack of demand
in the locality, which in turn can lead to mo-
tivated vendors and potentially discounted
prices.
Levels of price discounting Knowing the
average discount from initial listing price to
final sales price for the suburb for the last
12 months can give you an indication of the
levels of buyer interest and seller motivation
within that suburb.
Market demographics
Population and demographic changes also have
an impact on the real estate market, which will
need to adapt over time to accommodate popu-
lation trends and substantial changes in the way
people live and work.
By being aware of the projected variations in
population numbers and the directions in which
society is expected to move in the future, an in-
vestor can gain an insight into real estate supply
and demand in the years to come.
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| chapter 1 | pg 5
Other likely trends will include population shift
from urban areas to cities as new technology
replaces manual work, baby boomers retirement
and moving to warmer or other sea change loca-
tions.

Gathering information about population num-

bers and migration patterns, combined with
an understanding of these developing trends,
will allow an astute property investor to predict
growth areas and the demand for particular types
of housing and take this data into account in their
investment decisions.

Chapter 2 -
Selecting a property
investment strategy
Before you embark on your property investment
journey, you should select a strategy that best
suits your financial circumstances.
This information will help you gain an under-
standing about the types of strategies that un-
derpin successful real estate investors decision-
making and make an educated choice about your
own strategic investment plans.
Ask yourself, do you want to invest in property
to;
1. Generate a new income stream?
2. Create long-term capital growth to help fund
your retirement?
3. Generate relatively quick profits through
buying renovation properties and on-selling
them?
4. Create larger potential profits through devel-
opment projects but which tend to have
higher degrees of risk?
Next, you will need to work out how much, in
dollar terms, you will need to achieve this goal.
For example;
How much equity and/or cashflow do you
want from your portfolio to keep you happy
in your retirement?
How much income could you happily live
on if it were derived solely from real estate
investment and you were debt free?
Successful real estate investors rarely become so
by chance, but are usually savvy, hard-working
people who conduct lots of research, take calcu-
lated risks, and keep their ultimate goal in mind
at all times.
5 ways to define your search criteria
and property investment strategy
There are many property investment strategies
that you could choose. Here are five of the most
popular.
1. Renovation / adding value
Some investors seek properties with the capac-
ity to add value as their real estate investment
strategy.
These investments are normally purchased, reno-
vated and resold in fairly quick succession, so the
type of renovations that needs to be done will be
quite specific.
If you have the tools and determination, find-
ing renovation projects in almost all locations is
achievable.
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6 essential fundamentals for successful property investment | chapter 2 | pg 6

The key is targeting properties with potential that
you make improvements and add value to, for the
type of buyer or tenant looking to reside in that
area. So when considering a suburb to invest in
for a renovation project, bear in mind;
Demographics
Inward migration trends
Median price trends
Local culture
Property features that are in vogue
Who lives in the local area
Who is tending to move there
Who is currently buying
You can then target renovation projects suitable
for this market.
Once you have targeted the right kind of prop-
erty, put a budget in place to cover the initial cost
of the property and the improvements you are
planning on making.
You need to cover
Deposit
Stamp duty
Other related costs solicitors fees, pest and
building inspections etc
Renovation costs
Interest repayments during the renovation
Contingency fund
Research is key
You do not want to spend thousands of dollars on
a renovation if you are not certain it will increase
the propertys end value and also create a profit
margin from the project. Profit can include an
increase in value of the property and an increase
in potential rent upon completion.
Before you start on any project, research;
Current demand for real estate in the area:
how long properties are taking to sell
The median sales price for similar properties
in the area and historical capital growth rates
of the location
How much similar properties currently rent for
in the area (if you plan to let the property out)
An estimated market value for the property
once the improvements are made
6 essential fundamentals for successful property investment
Renovation tips
Dont cut corners
Never put a property on the market that isnt in
a finished state. Potential buyers wont know if
you intended to do extra things if they werent
started, but they will not look favourably upon
a half-finished bathroom, unfinished decks and
kitchens without appliances.
Ensure a point of difference
Potential buyers may have looked at the property
before you purchased and renovated it. Ensure
the changes you have made are noticeable, value
adding benefits so you can achieve a profitable
renovation project.
First impressions count
Determine what your target market is before you
begin renovations and if you decide to sell at the
completion of the project, ensure the property
still appeals to the market you had in mind.
The goal is to maximise the property value for the
minimum cost possible, so consider these tips;
Modernising the street appearance and entry
to the home to impress potential buyers
Erecting a fence/planting for privacy
Modernising kitchen cupboards with new
finishes and changing door handles
Replacing worn bench tops
Upgrading showers and baths
Putting in new tiles, taps and fixtures
Re-painting everything inside and out
Replacing window and floor covers/furnish-
ings
Fitting mirrors, improving light and other
space enhancing ideas
Dont fall into the trap of trying to do everything
yourself. Hire professional contractors where
needed.
Renovations do not always have to work towards
the goal of immediate selling. You may wish to
renovate, revalue and then rent out the property
at an increased level of rent.
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| chapter 2 | pg 7
Tax implications of renovating a property
The tax treatment of investment property expen-
diture and deductions can be a bit of a minefield.
In general terms however;
Repairs are regarded as a partial correction of
some items that have become worn or dam-
aged. e.g. Replacing an inlet valve in a wash-
ing machine would be a repair and the cost
would be fully deductible in that tax year
Partial restoration of a fence could be classed
as a deductible repair, whereas if the entire
fence is replaced it is more likely to be consid-
ered a capital improvement to be depreciated
over time
Renovations or capital improvements that
involve more substantial structural work or
major changes do not have a provision for an
immediate deduction for their costs, however
capital works deductions can be claimed (de-
preciated) over many years
Real Estate Investar recommends you consult
your accountant if you are unsure of the tax impli-
cations of your renovation.
2. Rental return
For some real estate investors, the cash flow they
yield from an investment property will determine
their ability to obtain that property in the first
instance. The old adage for rental return was to
ensure the rental yield was 10% of the loan costs
per annum.
Yielding a decent cash flow from your property
investment is the key ingredient to investment
longevity, and for some investors, a necessity
from the outset.
As a general rule you want the highest rental yield
possible, when compared to the loan value on the
property.
6 essential fundamentals for successful property investment
For tax purposes, it is also worth noting that
your rental income also includes:
Advance rent
Late rent
Insurance payments from loss of rent
A rental income does not include:
Rent due but not paid
Rent from a family member - this is consid-
ered domestic in arrangement
Exchange student payments
Board payments
Bond money
Those who co-own a rental property will usually
divide the rental receipts in line with their legal
ownership -- i.e. 50/50 or 40/60 etc.
If you require your rental income to cover the
expenses of the property, you will need to ensure
the weekly rental payments exceed the weekly
repayments on the loan and other fees such as
rates, body corporate, property management fees
etc.
Check out Real Estate Investars Property Analyser
tool, which allows you to determine whether an
investment property is financially viable in just
a few minutes. You can analyse, calculate and
compare immediate equity, added value, income,
vacancy rates, expenses, depreciation, after tax
cash flow and capital growth on any property in a
detailed report.
Finding positive cash flow deals
For many the only way this will occur is to buy a
property in a high rental yield area or to wait until
enough of the loan is paid off and for rental yields
to rise over time.
Taking out a smaller loan as a percentage of the
purchase price (e.g. at a 60% LVR instead of 80-
90%) can ensure immediate positive cashflow
surpluses. The property however, can still be
negatively geared for tax purposes after deduct-
ing depreciation, which is a tax-deductible ex-
pense albeit a non-cash cost.
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| chapter 2 | pg 8
3. Buying at a discount
Buying real estate at a discount or below market
value means you purchase a property for less
than it is worth in market terms. Its the aged old
concept of making money on the way into the
deal.
This is one of the cornerstones of successful real
estate investment and is a common strategy for
investors. Its very common in a depressed market
where there is a shortage of buyers.
The reason discounts exist within the property
market is due to the illiquid nature of the asset.
There is no guaranteed buyer for your property,
even if the asking price is reasonable and espe-
cially if there are lots of other motivated sellers in
the same suburb.
This usually occurs during a market slump or
downturn and prices are more volatile and can
even fall.
There are discounted, below market value prop-
erties all over the country if this is part of your
search criteria.
Click here to learn more about how Real Estate
Investar can help you find thousands of heavily
discount properties online.
4. Capital growth potential
Capital growth is an increase in the value of an as-
set. It is also referred to as capital gain and capital
appreciation.
The capital growth potential of a real estate in-
vestment depends upon a number of factors, the
most prevalent being time.
Although some properties possess a better
capital growth potential than others, time is the
essence of realising capital gains in the world of
real estate investment.

Getting a discount on the asking price of a prop- Key indicators of capital growth
erty is not necessarily akin to buying below mar-
ket value. Quite often prices are inflated due to
Indicators How it can help you
unrealistic sellers expectations and lack of knowl-
edge of their current market valuation. Last 20 years capital growth Past performance of a suburb
trends and median property can help predict future capital
Motivated vendors prices, for houses and units growth
Generally speaking, buying a property at below
market value usually has more to do with the Average property days on Tracking this helps ascertain
seller than the property itself. market to sell time / auction the current supply and de-
clearance rates mand for property in a locality.
Where demand for property
Sellers who are very keen to sell a property can consistently, over the long
mean they will be willing to sell below market term, outstrips the available
value to find a speedy resolution to their issue; supply, prices will tend to rise.
perhaps they need the sale to settle another
property they are buying or are family members Future developments of Planned improvements to an
taking care of a deceased estate. infrastructure or amenities area, such as a major highway,
schools, hospitals, transport
Sellers who agree to below market value/dis- and shopping centres, can
counted sales usually want out of the property lead to future capital growth,
due to increased desirability
very quickly. Time is a motivating factor for them. of the location followed by
population growth, increased
While this is great for savvy investors ready to employment and further
swoop, caution should also be taken. Are their investment.
reasons for wanting out personal, or related with
Increases in income levels As the average income rises in
issues attached to the property itself? a location, so can the capacity
of its residents to spend more
of this disposable income on:
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6 essential fundamentals for successful property investment | chapter 2 | pg 9


Population growth
Rising weekly rental prices
Low supply of vacant land for
development
Comparing median prices in
neighbouring suburbs
6 essential fundamentals for successful property investment
> Local amenities, retail etc
with flow-on multiplier effects
which can increase the desir-
ability of a suburb
> Renovations and improve-
ments on their principal place
of residence or investment
properties improving the
quality of properties in a
suburb
Inward migration to a suburb
can influence capital growth
as when people arrive in a
locality, they need somewhere
to live straight away.
Targeting areas with strong
population growth and lim-
ited capacity for new housing,
which can affect the levels of
demand for property, influ-
ences capital growth.
This reflects high rental de-
mand and the attractiveness
of a suburb
Less land available means
fewer new properties to com-
pete with existing properties.
Where supply is constant and
demand rises, prices tend to
rise too.
By identifying trends in these
differentials, investors can
identify gaps where suburbs
can potentially catch up in
capital growth.
5. Off-the-plan strategy
Investors who buy off-the-plan homes, units
and apartments get the benefits of 6-18 month
delayed settlements, higher depreciation and low
maintenance costs in the initial years and maxi-
mum tenant appeal.
An off-the-plan strategy can either be very suc-
cessful, high risk, or both. It depends upon the
location of the property, the popularity of the
development and the price in which the investor
manages to secure the deal.
Investors who make a habit of buying off-the-
plan are good at researching market fundamen-
tals and understand what will drive up both
suburb values and rents over time.
The goal is to secure off the plan properties, at a
developers discount price, whilst benefiting from
any incentives with the goal that the property
may also increase in value prior to settlement due
to the 6-18 month delay between contract and
settlement.
Historically, investors were encouraged to buy
multiple properties in the same development, on
the basis of on-selling them prior to settlement
for an instant profit. This is a high-risk strategy
especially if a high percentage of other investors
have the exact same plan. Spreading your risk
is recommended with off-the-plan investments;
always have a Plan B. Dont assume you can on-
sell prior to settlement for a profit, make sure you
can also afford to hold the property as well for an
indefinite period of time.
Be aware that developments can also stall or not
get built at all, due to developer financial failures
or from infrastructure delays, so there are many
risks to consider.
Whatever your strategy, budget is crucial
Most of us have a finite amount of money we
can put into real estate at any point in time, and
therefore, a limit on our borrowing capacity to
fund our next real estate investment purchase.
For this reason its necessary to ensure you search
for properties within your price range.
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| chapter 2 | pg 10
You can search above your budget as most sell-
ers usually tag an extra 8-15% onto their asking
price than what theyre hoping to come out of the
transaction with.

But spending your time checking out $500,000

homes with $250,000 in your pocket is probably
a bit too unrealistic; its worthwhile finding the
middle ground.

Working within your price range means usually

means seeking properties that are within 5-10%
of your top price.

There are always exceptions, and Real Estate Inve-

star has members who have used its
suite of tools to secure heavily discounted proper-
ty well below the asking price, but it is advisable
to have some initial buying rules in place.
Getting into the market can be the hardest part
of becoming an investor, so if your price range is
impeding you from getting what you want - move
the goal posts, whilst keeping your strategy in
mind.
To find out the best performing suburbs in Aus-
tralia, which can help you initiate your search,
please click here to download Real Estate Inve-
stars Pack of Top 50 Suburb Performance Reports.
In most cases your criteria for selecting an invest-
ment property will differ from selecting your next
home to live in. What is a good house for you
to live in yourself may not necessarily constitute
a good investment property, so make sure you
are financially focused, stick to your buying rules
and dont get emotionally attached to potential
investment property purchases. This can lead to
bad investment decisions and you will lose in
the negotiation if you are not prepared to walk
away.
Work within your price range and be realistic
about your purchasing power at all times.
Chapter 3 -
Building a team to
work with
Because raising the initial capital to buy your first
real estate investment can be difficult, it is tempt-
ing to bypass identifying professionals whose
help will be needed.
Real estate investment is much like running your
own small business you are in the business of
property.
Whether you have 1 or 100 properties in your
portfolio you will need to make decisions about
tenants, property management, and mainte-
nance and keep thorough records of all transac-
tions and dealings for management, accounting,
tax and legal reasons.
Value your own time highly
When you come to making a decision about
whether or not you will hire a contractor to carry
out maintenance work, weigh up the benefit of
using a property manager for these and the other
decisions that face real estate investors every day,
before deciding to take on these tasks yourself.
Think about the impact on your own time.
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6 essential fundamentals for successful property investment | chapter 3 | pg 11


You are a valuable commodity. Can you really
afford to do the work yourself when you could
hire a professional and minimise the true costs by
writing them off as tax deductible anyway?
As a general rule, you should choose
a team of experts, including;
Accountant
An accountant is often your first port of call when
considering your future as a real estate investor.
Quite simply, you cannot invest in real estate
without money but unless youre an accountant
yourself, there are significant decisions to make
about tax, risk and asset planning before you take
the plunge.
The first thing an accountant can do is give you a
good overview of your real estate investment po-
tential, taking into account your current financial
situation, time of life and income.
When it comes tax time you want your accoun-
tant to be an expert on minimising tax and help-
ing you get the best return on your investments
as possible.
You can use your accountant to advise you of not
only the best ownership structure, but also ways
in which you can avoid investment headaches,
while keeping your compliance costs to a mini-
mum.
6 essential fundamentals for successful property investment
Lawyer or conveyancer
During any property transaction you will require
a qualified legal professional to arrange settle-
ment of the property.
A solicitor is a generalist legal professional who
may or may not specialise in property transac-
tions. You would tend to use a generalist solicitor
to facilitate your buying and selling transactions
if they have completed a conveyancing certificate
and have extensive property market experience.
Conveyances are usually not legal professionals in
a generalist sense. They may not have completed
a law degree at university or been admitted to
practice generalist law, although there are some
conveyancers who are also solicitors, they just
specialise in property transactions only.
A conveyancer will usually provide you with all
of the expertise you need to buy and sell prop-
erty. They will run all of the necessary property
title checks and searches on the property and
facilitate the settlement process as a middle man
between the buyer and the seller.
The general rule is to form upfront relationships
with a trusted solicitor, conveyancer or both
when considering buying an investment prop-
erty.
Banks vs brokers
Real estate investment costs a considerable
amount of money and for many investors raising
capital and sourcing funding is the major impedi-
ment to forging ahead.
Determining the right financier is partly about re-
lationships, but more importantly about aligning
your borrowing strategy and structure with your
long-term investment goals.
An experienced broker or banker is an essential
member of your team. You wouldnt choose your
next house or car on price alone and you should
not choose a mortgage just because it offers the
cheapest rate. Lenders that offer specialist loan
products for investors should be considered.
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| chapter 3 | pg 12
Banks
A bank lender can be directly approached by the
investor and it is as easy as making an appoint-
ment with the loans manager at your local bank
branch.
There is every chance this bank will want to loan
you money to buy property and they may even
try to talk you into making an application for pre-
approved mortgage finance on the first visit.
But tread carefully. Banks may want you to
borrow with them and them only regardless of
whether their competitor down the road offers
a product which is actually better suited to your
financial situation and capability.
Enter the mortgage broker
A good mortgage broker will essentially shop
around for the right loan for you and your indi-
vidual financial situation.
A trusted independent mortgage broker can be
the best friend of a property investor and the one
expert who can truly help to get your property
portfolio dream off the ground by arranging your
first mortgage.
Registered property valuer
A valuer is instructed by the lender to assess the
market value of any property offered as mortgage
security.
A valuer will normally elicit this information by
making a comparison of the property in question
with comparable properties in the same area and
their recent sales values and making adjustments
based on the differences.
When will you need a valuer?
If you are applying for finance your bank or lender
may require a valuation of your existing assets to
ensure they are able to calculate the actual equity
you have within your portfolio.
6 essential fundamentals for successful property investment
Banking institutions will usually use their own
panel approved valuers to carry out this valuing,
and they will generally be conservative when
making a valuation of your existing assets to en-
sure they minimise their risk from financial expo-
sure to the money they are lending you.
Getting a market valuation when selling your
own property helps determine the right market
price to place on it.
Valuers use a combination of market informa-
tion, land values, development investigations and
other analysis techniques to arrive at their valua-
tion estimate.
Many agents, banks and valuers use Real Es-
tate Investars My Valuer and My Research tools
(through APM). These tools enable property
investors to conduct unlimited valuation estima-
tion reports online and do their own comparable
sales research and analysis.
Click here to find out more.
Contractors such as plumbers,
painters, cleaners, pest controllers
Builders and other contractors will form an inte-
gral part of your real estate team.
At the outset of your real estate investment life-
time you should work to gather a list of reliable
contractors to assist you when you require emer-
gency maintenance or planned jobs to be carried
out on your investment properties.
Major renovations or alterations to a property
will require the coordination of several trades
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| chapter 3 | pg 13
people at the one time, and this type of scenario
is a great opportunity to compile a list of reliable
contractors for future projects.
How to choose your contractors
Often, the best way to choose builders and other
contractors that you can rely on is by word of
mouth from recommendations and testimonials
from former clients.
Do fellow friends, family or investors speak highly
of a particular trades company or individual? If so,
take the time to make contact with this person or
company and gather their contact details in the
event of requiring their specialist work at your
property.
Property manager
A good property manager looks after the tenancy
of your investment property, helps protect your
asset and maximises its financial returns.
6 essential fundamentals for successful property investment
A property manager is used to source the right
tenant for your property via a detailed selection
process based on the tenants past rental history,
income details, credit checks and other applica-
tion documentation.
Once the right tenant has been matched to the
property the property manager then works to
manage their tenancy by facilitating the collec-
tion of rent and the payment of it to the owner
after deducting management fees and other
property expenses.
Take your time and do your property manager
homework when making your selection.
You will be paying them a fee for their time and
effort and you want to ensure you are getting
good returns on your investment. Always ask for;
Details of their qualifications and experience
Management systems in place to look after
your property
Services provided as part of their fee
An overview of the fee structure
Referees you can call (other landlords)
Ensure your property manager has a rental pay-
ment tracking system in place.
Ask to see some inspection records they have car-
ried out on other investment properties to ensure
they are thorough and it meets your standards.
Meet several property managers and list the pros
and cons of each before deciding who will man-
age your investments the cheapest is seldom
the best choice.
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| chapter 3 | pg 14

Work with a team you can trust
Forge long-standing relationships with people
you trust very early on in the piece and seek
advice before you even start making conditional
offers on properties. Choosing the right experts
will reduce your investment risk right from the
start, and no doubt save you money and mistakes
in the long run.
Chapter 4 -
Financing your
property investment
purchase
How much do you need to get
started?
For most residential real estate investments you
can borrow to buy an investment property with a
typical deposit (or surplus equity in another prop-
erty) of 20% of the purchase price.
While you can borrow more than 80% with some
lenders, you need to factor in higher interest rates,
lenders mortgage insurance and higher risks of
larger mortgage payments.
Types of loans
You will also need to budget for;
Stamp duty
Settlement costs
Conveyancing costs
Bank fees
Title transfer fees
Other miscellaneous costs
Any down time until rental income commenc-
es
Others sources of finance
Equity - the difference between your proper-
tys market value and the outstanding balance
of all loans on the property. Recycling equity
6 essential fundamentals for successful property investment
is the term often used to describe the process
where investors leverage/borrow against the
equity in each existing property they own to
help to fund the next.
Family - Using money gifted, borrowed or
pledged from family members as guarantors
as a source of finance or your deposit for your
next real estate investment.
Superannuation funds - Under certain cir-
cumstances, SMSFs can purchase real estate
for investment. Legislation changes made
in 2008 mitigated the risk to an individuals
investment portfolio by making property
investment possible.
Mortgage brokers and non-bank lenders
- will either belong exclusively to a particular
financial institution, or work for a mortgage
lending company who can apply for loans on
behalf of their clients across various finan-
ciers.
Vendor finance - where the seller (also
known as the vendor), instead of demand-
ing 100% of the sale proceeds at settlement,
accepts terms that allow the borrower to pay
an initial amount at settlement e.g. 80% and
then repay the balance of the propertys sale
price over a fixed term e.g. 20% over 2 years at
an agreed interest rate.
Interest only - The borrower only pays the
cost of annual interest on the loan each year
and does not have to repay the principal until
a later date.
Principal and interest - Paying a principal
and interest loan means you are paying the
current monthly interest due and progres-
sively reducing the outstanding balance on
the mortgage by also making principal repay-
ments, so that you are progressively paying
off the mortgage.
Revolving line of credit - A line of credit en-
ables you to use generally up to 80% of your
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| chapter 4 | pg 15
 equity as collateral for further credit to make
future purchases. It is an option chosen by real
estate investors who want the flexibility to
top-up their mortgage to a pre-agreed level
without having to take out a separate mort-
gage each time
Non-recourse financing - The borrower, in
the event of failing to fulfill the terms of the
loan, has their liability limited to the property
the mortgage is secured against only and
does not offer other asset security or personal
guarantees
Full doc loans Requires the documentation
of all income, assets and liabilities and is the
most common type of mortgage loan used
Lo doc loans - Have less need for stringent
income information than full doc loans, but
still rely on a good deal of documentation to
get approved
Low start loans - Offers borrowers low estab-
lishment costs, a very low variable rate for the
first 6 to 12 months and no monthly fees
As the application progresses, information pro-
vided by the potential borrower such as identi-
fication details, salary and overall financial situa-
tion is subsequently confirmed and credit check
reports are received. The lender or broker will
form an opinion of the applicants ability to ser-
vice a loan and a conditional approval letter will
be issued if lending criteria are satisfied.
Approvals confirmation - Once all the neces-
sary paperwork has been completed, its normally
only a short time before approval.
Make sure you read and understand everything
before signing up. Keep your conveyancer or
solicitor in the loop. Ask questions if there is any
confusion - taking on a housing loan is the largest
financial decision most people will make.
The bank valuation - A fundamental part of a
property loan approval is confirmation by the
lender that the valuation of a property being of-
fered as security is sufficient to cover the loan.

Refinancing The process of re-financing, Lenders will instruct a bank panel valuer to
topping up or consolidating existing and/ perform a market valuation and also consider
or new debt with the same or new lender/s. what percentage of the purchase price is being
Always check the full cost of doing this and financed and the risk profile of the loan taking
especially break fees on existing mortgages into account other factors such as location and
average time to sell.
Deposit bonds - An alternative to a cash de-
posit for borrowers who have existing equity
in property and want to use a bond/guaran-
tee rather than a cash deposit. This is common
when buying off the plan with a 12-24 month
settlement as it avoids paying a (borrowed)
cash deposit and then paying the interest on
the money while it sits in trust awaiting proj-
ect completion and settlement

The loan approval process

Conditional and formal approval letters

If a loan application meets certain broad guide-

lines at the initial assessment stage, a lender or
finance broker may approve the application in
principle or indicate pre-approval.
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6 essential fundamentals for successful property investment | chapter 4 | pg 16

 Once you have targeted a property, at the very
least, ensure you research;

How long the property has been on the mar-

Chapter 5 - ket for
Finding the right Its on the market history; any changes in
advertised price since it was placed on the
location
market
Its sales history i.e how much the previous
owners bought it for
The location that you choose will depend on the
The median sales price for similar properties
property investment strategy you are pursuing.
in the area and historical capital growth rates
of the location
For example, if you are looking for cash flow prop-
How much comparable properties are selling
erties that can provide an income stream, you will
for (and renting for if you plan to let it as an
tend to search in higher yielding areas where the
investment property)
demand for rental property exceeds supply.
If you are planning on renovating the proper-
ty then selling it on quickly, how much similar
Whereas if you are looking for a discounted prop-
properties are selling for that already have the
erty that has potential for future capital growth,
features you intend to add
you will need to consider other factors such as;
An estimated market value
Population growth
The ripple effect
Future zoning and development plans
Statistical indicators
Levels of supply and demand

It is critically important to perform thorough

research of any location. The more time and effort
you invest in researching the suburb or location,
the less risk you will be taking.

Narrowing the search and

shortlisting properties
The type of property you target will depend on
lots of factors, including; Due diligence
Your property investment strategy Depending on the type of property you have
Price range targeted, you will then need to;
Projected rental yield
Capital growth potential 1. Analyse the initial costs of the property;
The ability to add value
Potential to buy at a discount Purchase price
Stamp duty
Whilst it is hard to generalise, all of these factors Your time and travel
will influence your property search during your Building and pest inspection
investing career. Legal costs
A depreciation schedule
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6 essential fundamentals for successful property investment | chapter 5 | pg 17


2. The ongoing costs of the property;
Utility bills
Repairs and maintenance
Renovations and capital improvements
Property management
Interest on your loans
Insurance
Rates
Body corporate
Unplanned vacancies
3. Evaluate the costs and benefits of the
investment over the life-time of the invest-
ment
4. Consider your ability to service the loan
that is needed to finance the investment
Accurately forecasting all of these factors will give
an investor a pretty decent idea of whether or not
their investment is going to be viable.
Negotiating is a crucial part of property invest-
ment and has the potential to save you thou-
sands on your next purchase. Bear in mind these
tips.
Remember who pays the agent
The agents priority is to achieve the very best
price for the seller and will use all their powers to
persuade you to buy the property you are look-
ing at.
They will enhance the positives, gloss over the
negatives and do their best to get you to commit
to the property and at the best possible price.
Dont be in a rush (even if you are)
Even if you are looking for a quick purchase keep
this to yourself. If you tell the agent you are in
a rush, it will enhance the vendors negotiating
position.
Instead, ensure the agent knows that;

You are finance ready

Chapter 6 - You would be happy for a quick settlement
But getting value and being on or under your
Negotiating tips purchase budget is your most important con-
sideration

Be information rich
Information is also a great arsenal to have up your
sleeve when negotiating a real estate deal.

Have you spent some time collecting relevant

information about the property? For example:

The quality of the location

Problems and defects with the property
Any issues in the surrounding area that may
affect your property
Ups and downs of the local economic envi-
ronment

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6 essential fundamentals for successful property investment | chapter 6 | pg 18

What better way to convince a seller to lower their
price than to remind them of the little things you
have noticed that is wrong with their property?
Use the power of positive and negative informa-
tion to assist you during the negotiation process.
Ask lots of questions
If you walk in the door of your next investment
property and it ticks all the right boxes, keep this
to yourself. Dont let the agent know that your
intention is to buy, at this early stage. Instead of
this, you need to ask questions that will prepare
the ground for future negotiations. For example;
Why is the property being sold?
How many people have been through it?
How long has it been on the market?
Has it been to auction and been passed in?
Has the price been reduced since it was listed
for sale?
Are there any known defects about the prop-
erty that the agent or vendor is aware of?
Conduct thorough research and due
diligence
When you think you are ready to make an offer,
stop and consider your position. At the very least,
you need to know all the factors that were men-
tioned previously such as its sales history, on the
market history, market value estimation etc.
the other two that I am interested in, the others
are $x cheaper. Therefore I am prepared to offer
the vendor $x (which would be below your top
price).
Haggling
There is every chance that the agent will come
back with a counter offer. Throughout the nego-
tiations, stick to your guns. Remind the agent why
you are making the offer you are (i.e bring out
your arsenal of research).
As long as you can justify why you are making the
offer you are, you will be in a strong position.
Finally, dont be afraid to use time-frames. Place a
limit of, for example, 24 hours on your offer. If the
seller has not received many offers and are in a
hurry to sell, this may tempt them to accept your
offer before it expires.
Property investment can appear complex and
even daunting to new investors. We hope this eb-
ook has answered some of your questions and can
help you on your property investment journey.

Making an initial offer

By the time you have reached this stage, you
should be equipped with a powerful array of
trends, facts and figures and in the best possible
position to make a good offer.

Using a combination of this research, arrive at

the highest amount that you feel you would be
happy to pay.

Then contact the agent and make the offer with

confidence. You can say something along the
lines of;

Whilst I like the property and slightly prefer it to

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6 essential fundamentals for successful property investment | chapter 6 | pg 19

Related property investment
resources
Real Estate Investar offers a number of other free
property investment resources which can help
you;

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The 32 suburbs that are producing 15-46%
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A property investment resource centre containing
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This knowledge can help you at every stage of
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6 essential fundamentals for successful property investment | chapter 6 | pg 20

 Disclaimer
The content found in this ebook is general in
nature, and we recommend you seek sound,
professional advice before making property
investment decisions.

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