HEADLINE:

Think like a property manager when buying your investment property

COPY:

If youre in the market for an investment property, then youre probably asking yourself the same type of question: how much can I afford?

But theres another, more important question many rent-vesters ignore – and its one that arguably has more of an impact on the day-to-day management of your property:

What kind of tenants can you afford?

I dont just mean how much rent you can charge.

Remember: when you own an investment property, you become a property manager whether you use a real estate agent or not. Many buyers dont think about this when purchasing a property, and they get a shock when they realise that owning an investment property is a job that requires you to be always on.

If your home is in a nicer area, with some more modern amenities, youre likely to attract tenants who will treat your property well and provide you with a better experience, with fewer problems.

But if you try to scrimp as much as possible on your property by buying in a worse neighbourhood youll potentially end up spending a lot more time fixing problems.

Personally, I always think property is a good buy. People need homes and owning a good piece of land or property is a fantastic decision that can pay off in the long-run.

But you need to be careful and consider what it means for you to own an investment property, and what it means for you to become a property manager – someone who is going to spend a fair bit of time making sure the property is in good condition and the rent is coming in.

So as a potential property manager, what questions do you need to ask yourself?

Why are you buying this property?

If an investment property makes sense for you, think about your own financial goals and lifestyle.

Do you want lower risk, with a potential higher gain over the long-term on your investment? Perhaps a capital gains strategy is suitable for you. (The rent is unlikely to cover the costs of the mortgage and other holding costs so youll need extra funds to hold the property)

Do you want lower risk, but an ongoing rental return with a potential smaller pay day when you sell? Perhaps a positively-geared strategy is the way to go. (This strategy should give you a small ongoing income so you dont have to keep digging into your pocket every month to hold the property but you are likely to get a smaller payday when it’s time to sell as opposed to the above capital gains strategy)

Both are typically long term strategies.

Or are you willing to take a bit of extra risk and get your hands dirty? Perhaps a buy, quick renovate / subdivide-sell strategy might work. (In other words, flipping your property!)

All of these strategies have an impact on your life as a property manager. For instance, it changes whether you want to make investments and improvements in the long-term viability of your home as a rental property and make it more attractive to tenants – which, of course, comes at a higher cost.

What do you need consider?

When it comes to buying an investment property, you need to keep one thing in mind: youre not buying it to live in it. Thats actually a good thing because it means you can be less picky and focus on the numbers rather than your emotions.

But owning an investment property means you become a property manager, so you need to look at everything through that lens.

Here some key topics you should think about:

Tenants

Think about the tenants you want in your property, and what tenant issues are likely to occur as a result.

Some properties attract short term tenants which means youll have to find new tenants all the time. While on the other hand some might receive slightly less rent but are able to keep tenants for the long term so you might only have to deal with a vacancy cost every few years.

Heres something to keep in mind: make sure your property does have a target market when it comes to tenants.

I once managed a four-bedroom property on the Central Coast in New South Wales. It was absolutely perfect for an older couple except for one major problem: it had 10 steps to get up to the front door!