Before delving into the finer details of how to generate wealth from an investment property, there are some fundamental decisions to make first – such as whether you will cultivate an asset that reaps cash flow or one that will give you the riches of capital growth.
But which of the two is most ideal for a first-time investor?
Director of The Property Bloke, Wayne Jessup, says that good cash flow for your first investment property can help to mitigate some of the risks, as well as act as a strategic starting point.
“Your first property, especially if you’re a re-investor, cash flow should be a better option for you because, therefore, if the market does fall back with capital growth, it hasn’t taken all your deposit away,” Jessup says.
“Because you still have that consistent cash flow coming in where you can either pay the property down if you need to and create more equity or save more money for another deposit to add another property to your portfolio.”
To help beginner investors sift through the many avenues that are on offer in investing through the property market, Jessup sits down with Your Investment Property editor Sarah Megginson to discuss the importance of having a goal when crafting a long-term plan – which he notes should always start off with “having a little bit of [an] understanding on property and home loans or investment loans.”
“You can have a blueprint or roadmap and it’s not for the rest of your life but [it] could be a five-year plan or a five-year blueprint, which is basically a strategy on what you’re going to put together in the next five years,” the property investor says.
“So then you know what sort or property to buy to get you to that end goal,” Jessup adds.
There’s also the option to extend on an investment that is already angled toward strong capital growth and inject it with positive cash flow – it all comes down to being “creative with what you have,” Jessup says.
Here are some tips for first-timers:
- Do your research – not all real estate is created equal. Look for in-demand properties in central locations as these are more likely to grow in value
- Vacancy rates matter – check with local property managers what the vacancy rates are like, so you don’t end up with a property that isn’t in demand and sits empty
- Have a cash buffer – if you struggle financially and live week to week, then this isn’t the right time to invest. Owning a property becomes very stressful if you don’t have a cash buffer to deal with emergencies
- Reach out to experts – if you don’t know what to buy, where to buy or how to invest profitably, contact an expert who has the runs on the board to give you guidance.
