Buying investment property has always been risky. However with recent stock market crash and subprime meltdown things are now even more risky, and there are many charlatans out there ready to make a quick buck at your expense. If you are looking at buying investment property and something takes your fancy, it is mandatory that you do your homework before jumping into a deal or lease agreement. The biggest mistake you can make with such an investment signing up, because you have a good feeling or it seems like a bargain. Sometimes if it is too good to be true it normally is.

Study leading trends journals, library documents, and other publications with detailed outlooks and growth in the area you wish to invest in. A very favorite saying with property investing is, location, location, location. When signing legal documents, ensure to read all the fine prints. There are always hidden catches and constraints with these deals. To save yourself hassle down the track, ensure you read the finer details before you commit to anything.

Make sure you understand the lease agreements, and terms before you agree to sign your contracts. Make sure you agree to honor the terms and conditions of your lease and speak up if you have any concerns. It is critical that you resolve any problems before you go on any further. Consult your tax and financial consultant for extra advice in the arrangements you have and any other circumstances that may arise. Sometimes you can structure your investment to take advantages of taxing benefits. It is normal that you adviser will consult with necessary legal parties to ensure each part of the investment deal is suited more towards your need. If you do not have time to do your homework or spend important time doing the right research, make sure you outsource this to other professionals in the field. Yes, this will cost money, but you are getting someone with much more experience and will take less time to do the important jobs you can’t.

Many seasoned property investors with more income or capital are able to invest in more speculative growth areas. Often these properties are negatively geared providing relief on personal income taxes. It is important to remember that tax savings from incurring a loss is not a sustainable or growth promoting strategy. When a property portfolio is built on highly yielding or positively geared properties, the borrowing potential and capital balances will increase over time allowing the portfolio to grow. Even when property prices fluctuate, with the current banking systems in Australia, Canada, and US the values of properties are not re-valued daily like the stock/security market.

The property price fluctuations will not impact the property portfolio’s cashflow. When started the property portfolio, preserving capital by using a low down payment provides the investor with a larger safer net/buffer in case of required repairs or vacancies. Other investors may argue that the insurance on non-conventional mortgages or mortgages with greater than 80% loan to value ratios offsets the benefit of using a small down payment. It is a much safer approach to have a supply of cash to be prepared for unforeseen circumstances than to have it all invested in the market. If a down payment of 20% to avoid insurance is available with spare cash for contingency, the large capital investment still locks up a large amount of cash from other opportunities.

Once a foundation of positively geared/positive cashflow properties is created, more neutrally geared properties can be purchased. Often in areas close to growing populations have neutrally geared property and provide potential capital appreciation. Areas with high cashflow often are in areas where capital appreciation has not occurred and my not. The cashflow provided by the foundation will enable the investor to seek properties with more potential growth.

One of the keys to success in building a property portfolio is to understand that the property is an investment and not a personal home. The areas that are great investments may not have the aesthetics associated with an investor’s lifestyle, but an investment that gains value and provides income is an asset while an aesthetically pleasing property which drains the investor’s income is a liability. It is critical to decide on a strategy and then research the opportunities that satisfy the strategy requirements. If you are a cashflow investor, look for opportunities and analyse them for cashflow. Often investors are emotionally attached after reviewing a property and try to make the property into an investment.