There’s no escaping it – buying your first investment property will become a benchmark moment in your life.
It’s an instant full of risk and excitement signposting the start of a real estate journey that will hopefully end in building a successful and profitable portfolio.
In my experience, first-time investors tend to fall into one of two camps.
The first group is mostly under 30-year-olds, predominately single and raring to get into it.
This cohort is primed to perform and full of confidence â€“ and they see plenty of upsides right from the start.
The second group is usually those older than 30 who already have a house or a little cash or equity and are looking to lock in their future financial comfort.
No matter which profile the investor comes from, first-timers need to comprehend a few basics to get them on the path to real estate success.
Pros and cons
While most people prefer to have some experience under their belt, we all have to start somewhere.
I also believe there are obvious benefits to being at the beginning of your investment journey, particularly when you have experienced advisors on hand to help.
It can depend a little on your age bracket, but young investors are usually tech savvy and can easily access and analyze data. They think quick and are fast to comprehend the available information.
This is a handy skill set to have and is particularly valuable given the wealth of online knowledge that’s now available.
It’s worth noting that time is one of the greatest tools available to an investor because long-term gains help level out any bad decision and of course, time is something young investors have in spades.
If you do have a financial tragedy of some sort occur when you’re younger, there’s an opportunity to correct it over the term of your investment life.
Another advantage of being in your 20s and 30s is you haven’t yet hit your peak earning potential, so there’s usually some extra cash flow in your future to look forward to.
Most of all, you get to start early and gain experience.
Remember too â€“ you’ll always learn the most when you’ve got some skin in the game.
You can be the greatest investor on paper, but it’s all theoretical until you actually stump up your cash and buy a holding.
Starting early allows you the opportunity to learn more than those who begin later in life.
Fear is often the primary motivating emotion for people who begin investing.
There’s the fear they won’t have enough come retirement.
There’s fear their daily wage won’t support the lifestyle they, and their family deserve.
Fear that if the worst were to happen, they won’t have a financial safety net to support them.
Fear that as our population ages there will be increasing pressure on the government as to how to meet pension requirements and that their compulsory super contributions will leave them woefully short.
I actually believe fear can be harnessed and turned into a positive.
Appropriately managed, fear is not crippling, but revelatory.
It’s the type of fear that helps you understand life, contains risks and you are the master or mistress of your own destiny.
For first-timers, it’s an emotion that can fire the belly and kick-start the action.
Make fear your friend, because potentially great financial rewards are the end game.
Before even starting the property search or organizing the finances, first-time investors need to tackle their headspace.
You must get your mindset on track from the start… or risk losing your way.
I call it ‘investing between the flags’.
Making sure those few centimeters bookmarked by your ears are ready to get set and go.
Investor mindset is about being prepared to meaningfully participate in the investment process, from education and research through to management and monitoring.
Some investors have been known to locate their first investment by seemingly perusing a map, spotting a location and saying, ‘that looks like an OK place to buy!’.
While some may have profited from this random approach, the reality is that active investors score the best returns.
Property is not a passive investment vehicle.
You must be prepared to be involved so get into that headspace before you take the initial, practical steps.
Be prepared for surprises
There are a couple of surprises in store for those making their first purchase.
First up â€“ anyone who’s been watching the Sydney property market since 2013 must be convinced huge annual capital gains occur with monotonous regularity.
In reality, our Sydney boom over the past five years should be viewed as an anomaly rather than a regular guide on how values change.
Long-term investing is the best approach, so first-timers must be prepared to wait for the upside, and have strategies in place for when there’s a downturn.
First-timers are also often surprised about the level of involvement in a portfolio.
You must not only make decisions about what to buy, you are the ultimate arbiter of who leases your home, how much you’re going to ask for in rent and what maintenance is required.
Investors must also be active in their financial arrangements, making sure they are constantly assessing the bank balance and borrowing terms.
What’s the best first investment property?
There is no one answer to this question â€“ and any advisor who says this is is kidding themselves and you.
Buying your first property is just the start of a lifetime of wealth building, and you need to ensure there’s been a full assessment of your financial position and future needs before you commit.
Don’t do it alone. Ensure you surround yourself with subject matter experts to help plan the path before you start searching for that first purchase.
Drawing on the experience of a real estate professional helps mitigate risks and gives confidence that everything can go to plan.
Steve Waters, The Real Estate Conversation, 10 September 2018