Seven smart moves when buying your first investment property: Cameron McEvoy

Those expecting a "get rich quick" list of tricks will be disappointed. If you are reading this and you have even a slight interest in using property as a vehicle to grow wealth and prosperity, you’ll know that most property investors employ a mid-long-term strategy instead of a ‘get rich quick’ one. If ultra-fast profits, aka ‘get rich quick’ schemes, is your ambition in the property investment sector, then my advice is to seek other types of investment! Instead, I’ll list tricks that are more about thinking outside the square, or perhaps processes that can be made more efficient to either save time or money, during your property investing career.

1. Be stamp duty conscious and don’t be afraid to take advantage of states where duty is less extreme.

One of the biggest hurdles in getting started in property investing is the stamp duty element. It sucks, but for a long time, it has been a necessary evil. Those buying their own homes may be able to avoid it, but investors must pay this upfront. The best thing you can do is keep yourself updated on state-by-state nuances when it comes to stamp duty.

There has been a lot of talk recently about it being scrapped in some states in order to help kick-start the housing industry in those states. My thoughts are that any scrapping in stamp duty purchase costs will come back as some form of tax or another. Perhaps higher land taxes or other state taxes would replace them. Still, assuming for now that stamp duty won’t be scrapped, you should investigate states where these costs are reduced.

When I refer to stamp duty, I refer to three charges actually, that must be paid for, per state, at purchase. These are the stamp duty itself (the biggest portion), the transfer fee (this can vary from as little as $100 up to thousands), and mortgage registration fees (a very minimal charge). For example, on the same $300,000 investment property price, you could be paying as little as $8,873 in the ACT, or up to $14,041 in VIC. The difference of $5,000 could be a make-or-break factor for first-time or new investors.

2. Pay down your bad debt while you are doing your due diligence.

 This is a big one, and one of the easiest to do. Personal debt (which most, including myself, call 'bad debt' because it is debt that is not producing an income) can hurt your chances when working with a lender (or a broker who engages lenders on your behalf). I read somewhere that for every $1,000 of credit card debt, personal loan debt, or other debt that you can pay out, it can add around $5,000-$10,000 of loan capacity to your status. Not sure how true that is, but my trick is to use your due diligence time (say three to six months of intense research) to aim to pay off as much outstanding debt as possible. You'll be surprised at how much more a lender will loan you when you have little to no personal debt. The additional volume of loan you can then have may enable to you to invest in a more desirable investment property than you initially hoped for.

3. While on finance – get used to the word 'no' and use it to your advantage.

 The trick here is all about lenders saying no. Those who employ the services of a mortgage broker are less likely to have an ‘absolute no’ (in other words, not one single lender willing to lend to you). But even then, never accept a ‘no’ from a lender as defeat. Banks and other lenders, while tightening their purse strings in the past year or two, are still willing to lend, you just have to find creative ways to agreeing on a product-type with them. 

4. People watching!

No, not in a perverted neighbourhood peeping Tom kind of way, but more in a 'walking the streets, eating in the restaurants, and sitting in the local park on a Saturday' kind of way. Get to know your target suburb occupants firsthand by witnessing them in their daily lives. Why? This can help give clues as to the kind of property type to buy.

Census data and other data sources cannot always be trusted in capturing the snapshot of who really lives in a suburb, so you need to see this first hand. It'll help inform your decisions about dwelling type, bedroom volume, and demand for proximity to certain amenities. For example, if you see lots of very young families with babies – despite data telling you otherwise – those babies will likely need pre-school within a couple of years. It may be worth considering proximity to pre-schools as a factor in your property search.

5. Always keep your eye on the prize by having an exit strategy up front.

 Too many new investors – including yours truly – tend to focus much of their energy on the acquisition stage. Some people are heavily focused on growth, so they set targets like 'I want to acquire one property a year for 10years, and then hold'. But then what? Selling up, or 'cashing out', as some call it, is a process that must be planned for, up front, by collaboration with an account, an advisor, and with your personal dreams, hopes, and aspirations. That last part is the most important bit, and should be the dictator of when it's time to cash out.

If you are like me, you'll want to be spending most of your 50s and beyond cruising down the Nile River for six months of the year, or trekking through Alaska or something. You need to figure out how you are going to dump as many of these properties as possible, at the right time to achieve your goals. If you have 10 properties you may want to offload over half of them, but beware: this process could take many years to do it in the most tax-effective way. Starting out, you must focus on the start, but so too should you map out when you want it all to end.

6. Build your industry relationships and foster them.

Build solid relationships with your ‘crew’ (as I like to call them: your mortgage broker, solicitor, planner, accountant, managing agents etc). I send them all a Christmas card every year. It sounds like a minor thing to do, but little touches like these, help keep the relationship strong. In effect, you are paying all of these people to do work for you, so really, you are their customer. If anything, they should be sending you a Christmas card! But being polite, while being assertive, helps to maintain a good relationship. I’ve known investors who treat their crew terribly, getting angry at them all the time over small things, being rude and demanding on calls with them. This attitude can come back to hurt you later on if you need to call upon them for a favour; the favour may be met with resistance or little interest.

7. Be more organised.

 A pretty obvious one, but as you start to collect data, due diligence research and then move to a property purchase and ongoing management of it, you’ll collect lots of information. If your day job is in an office, you are probably pretty organised when it comes to paperwork, Microsoft Office files, and so forth. For those who do not work in such an environment, you need to become very savvy, very quickly, with data filing and admin. It sounds boring, but having everything organised and easily/quickly accessible is key. Some areas you can make more efficient are:

• File naming conventions. Keep successive versions of your spread sheets, word documents, and pdfs logically named, and filed in the correct folders
• Back everything up. Ideally you’ll have some kind of network-attached storage that can duplicate every ‘save now’ in a document, on a second drive or space, so that data loss is avoided
• We still live in a print world, sadly. This means you’ll get lots of bills, notices, and contracts in print. Ensure you keep these filed in logical lever arch folders, or invest in a filing cabinet and employ a consistent filing convention to ensure nothing is misplaced.
• Keep a log of all expenses close to where you keep the receipts for them.
• Generally speaking, keep everything that any key party (lenders, solicitors, estate agents and so on) sends you, even if you don’t think you’ll need it later on.

Cameron McEvoy is a NSW-based property investor and maintains a blog, Property Spectator.