Property investment, whether you’re currently an investor or not, has always been popular in Australia. Not only does it play into our national obsession over property ownership generally, but many of us also see it as a path to financial freedom.

Of course, property investment can be an excellent way to make money. But if you don’t do it the right way, you might find yourself in a financial pitfall rather than with a financial profit. The key is to make sure you’re making smarter property investment decisions.

So, here are our seven steps to smarter property investment.

7 Steps to Smarter Property Investment

Step 1: Understanding the basics of property investment

To begin to make smarter property investment decisions, the first thing we need to do is understand the basics of property investment. Property investment is not just about buying and selling. It’s about strategic planning for income generation and capital appreciation. In other words, you need to have a strategy that will see you making a strong return in the future.

There are lots of benefits from property investing, but the main is its potential for delivering substantial returns. These might be rental income, capital gains or tax benefits. On the other hand, there are certainly risks to property investing, including market volatility, legal complexities and large upfront costs.

Embrace market analysis

One key to being successful in property investment is understanding market dynamics. This involves analysing economic trends, demographics and local market conditions in your ideal investment area.

For example, if you’re looking to purchase a residential property, you’ll want to understand if home prices are currently on the rise. Or are they looking as if they might dip in the future. If you’re looking at suburbs to buy in you’ll want to understand the services that are offered in the area, and who those services might appeal to, such as day care options for families. These details will help you make smarter choices in your investments.

Keep educating yourself

Once you’ve done your market analysis, your job doesn’t end there. Smart property investing means continuing to stay on top of the real estate market. The market is constantly evolving and staying informed about the latest market changes, legal updates, financial tools and even property trends, can help you to make decisions that support you financially.

You might consider attending seminars or even networking with other investors. Both of these can help you gather those invaluable insights that will help you grow as a property investor.

Step 2: Create your individual investment strategy

The second step to smarter property investing is creating your own individual strategy. Some strategies that you might consider are:

1. Buy-to-rent: Buying a property to rent out for regular rental income (whether residential or commercial) is a great property investment approach. To get the best outcomes here, you’ll want to focus on purchasing properties in high-demand rental areas such as inner suburbs.

1. Property flipping: With this strategy you’ll be looking to buy a property at a low price, which you then plan on renovating and selling for a profit. This can be an excellent approach to property investing but it does require a good understanding of the renovating space.

1. Development projects: This involves purchasing land or outdated properties and developing them into modern spaces. It's a high-investment strategy, but it can lead to a high-return in the right circumstances.

While these are some of your options, in order to make those investment choices you need to understand your own goals and purpose for investing. Ask yourself, am I looking for a steady rental income or am I more interested in capital appreciation? Do you want to see a smaller, but more immediate return, or are you planning on holding onto the property for a longer term? Each of these will impact your own investment strategy.

Setting your strategy and clarifying the goals that will get you there, will help you take your property investing from general to tailored specifically for you.

Step 3: Choose the right property

This might seem like an obvious step, but too often investors become impatient with the investment process, and end up choosing the wrong property. However, the cornerstone of successful property investment is selecting the right property.

So how do you do it smarter?

1. Set out your criteria: First, determine what type of property fits your investment goals and set out the criteria you need to find that property. This includes deciding between residential, commercial or land investments. You’ll also need to figure out each property’s potential for income generation and appreciation and ensure your ultimate choice fits your overall strategy.

1. Choose your location: The adage ‘location, location, location’ holds true. A property's value is significantly influenced by its location. You’ll want to start by looking at the suburb, but also consider the neighbourhood and street itself.

Consider factors like neighbourhood composition (i.e., is it made up of families or double income couples?), proximity to amenities and any future development plans that are in the making.

1. Evaluate the property: Of course, you’ll also want to look at the property itself. What’s its condition? Does it have the potential for appreciation? And does it require any maintenance. This step is vital in estimating both your initial investment and any ongoing expenses.

Step 4: Set your financial plan and budget

Understanding your financial capacity is crucial in property investment (you can’t invest what you don’t have!). While much of this will come down to the lender’s analysis of your borrowing capacity (assuming you need to take out a mortgage on any new property investment), you also need to consider your own debt tolerance.

So consider your income and expenses (all sources and accounts), but also consider how comfortable you are carrying debt, especially if you have an ongoing property investment strategy.

Step 5: Diversify

If you plan to make multiple property investments, consider diversifying. Diversification can be a key to a stable investment portfolio. This might include choosing a mix of residential, commercial and land investments as each offers different risks and benefits. This makes your investment portfolio less likely to be taken down by market fluctuations.

Step 6: Develop an exit strategy

You must have a clear exit strategy in mind. Whether you plan to sell or rent out the property, you’ll want to know when you’ve maximised your returns and how to best divulge any single investment.

Step 7: Leverage professional expertise

Property investment is complex. And because of that, one of the ‘smarter’ decisions you can make on your property investment journey is to seek expert advice.

Work with good real estate agents with a proven track record in your investment area who can (and do ) share their market insights. Choose fantastic finance and mortgage brokers (like our team!) who can offer astute financial advice. And of course, find excellent legal advisors who can assist you with all compliance and contractual matters.

Having the right team behind you can make all the difference!

More help from the experts!

The home loan space can be complex, especially when it comes to property investment. But you don’t have to navigate these complexities on your own.

At Lending Loop, our mortgage brokers are committed to helping you find the best solutions tailored to your needs. We’ll give you the expert advice you need to make informed decisions for smarter property investment.