Creating your property investment plan Investing in a rental property is more likely to give you what you want if you re operating to some sort of plan. A good plan includes thoughts about your goals and the rewards you expect as well as how you ll go about achieving them. It provides a basis for making decisions that are more likely to lead to your goals. With a plan in place you can accurately measure progress. You can also quickly recognise when things are falling behind or exceeding expectations and make adjustments to suit. Goals Setting your property investment goals A good place to start can be to think about why you want to invest in rental property. If you re buying your rental with a partner remember to include them in this process. To get to the underlying reasons it can be a good idea to ask yourself why several times in a row. For example, if your first answer was to make money then ask why you want to make money. If the answer is something like to retire earlier or to buy a big yacht when I m 50 and sail off around the world then ask why you want to do that. By this stage you ll be getting
to the reward you have in mind, like having time to spend with grandchildren or fulfilling a childhood dream. Keeping sight of the rewards can help you stay motivated in more challenging times. Identifying your other life goals This is really important. If, for example, you want to take three years off to travel the world before you re 30, then the way you choose to invest in rental property could either support or block that goal. The same applies for any other goals you might have, such as starting your own business in ten years time, taking a career break to raise children, studying for a qualification or throwing away the work clothes at 45 to follow your dream of being an artist. SMART goals Most experts in business or investment planning would agree that goals should be SMART specific, measurable, attainable, realistic and timely. SMART example 1: I will be able to choose to retire at age 55 with an annual income equivalent to $30,000 in today s money that will come from the rent I get from my mortgage-free properties. SMART example 2: In ten years time I will have the equivalent of $100,000 in today s money to start my own business as an interior designer, so I won t have to worry about the risk of paying off loans while I grow the business.
Understanding your current situation With your property and life goals clearly identified, it s time to get a detailed understanding of your current financial situation, your skills and your appetite for risk. You could list the value of your assets (the things you own) and your liabilities (the money you owe). You could also create a budget for the year ahead, without including a new rental property at this stage. Check our How to budget guide for ideas. Make a list of the skills you have that will help with rental property ownership. For ideas, check the list under the heading You ll need to be versatile. Identify any skills that you might need to develop further and the things you ll have to pay others to do. The other thing to be clear about is your appetite for risk. Again, include your partner if you have one because you might both need to live with owning a rental property for many years to come. Will you be able to sleep at night with a large home loan when interest rates are rising, rents are falling and your tenants have just phoned to say they re leaving? Or will you be happier with a more conservative approach, even though it might provide a lesser return at times?
Thinking about possible strategies There are all sorts of ways to approach rental property investment. Exploring all the options will help you to work out a plan that suits your goals. The type of property you buy is important There are flats, apartments, units, townhouses, houses and even holiday homes to consider. Flats for example, tend to support a goal of having a regular income rather than an above average increase in value. In addition, because they re seldom owner occupied, their market value is often more closely aligned with rental returns than general property prices. This means their value can rise and fall at different times to the rest of the market.
With any type of residential property there s a range of strategies to choose from. You need to find one that suits your current situation and your goals. Here are some examples: If you have very little spare time you might prefer something that s straightforward and ready to rent immediately. A lot of people trying to buy their own home will be looking for these as well, so you might have to pay a little more. This could suit you fine if you don t want to renovate and your main goal is to earn a regular income from rent. If you have the time and patience to look at a lot of properties and your plan doesn t call for an immediate start, then you might decide to wait for a real bargain. They re rare but they sometimes become available when getting a top price is not the seller s priority, such as a deceased estate or after a relationship break up. If you have renovation skills, or you re willing to manage and pay for a renovation project, then something that needs doing up might suit. It could give you an early increase in value and the ability to attract a higher rent once everything s done. But it ll only work if your plan doesn t require an immediate rental income. The cost of renovation needs to be built into your financial plan to make sure you cover this expense when you are looking at how soon you ll break even or make a profit.