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With our housing markets have experienced a period of strong capital growth and with rents on the rise, there are more people interested in getting into property investment.
However if history repeats itself, and it most likely will, while some will develop financial freedom through property.
Close to 50% of investors who buy a property sell up in the first five years and 92% never get past the first or second property.
In fact there around 1.9 million Australian investors never get past the first or second property and less than 21,000 Australian investors only six or more properties
So how do you succeed, how do you get into that small group of investors who build a substantial property portfolio?
Currently, there are so many options out there. Everyone seems to have become a property expert with an opinion of how to create wealth through property.
And, I don’t know if you’ve noticed – many of their suggestions are conflicting.
I’d like to help start you on the right path by suggesting ten questions that I believe all budding investor needs to get their head around before buying into the property game.
1. What do I want to achieve?
Is it money? Wealth? Financial freedom? Maybe all of the above!
Remember the bricks and mortar are not really the end goal; rather they’re just the vehicle you choose to get there.
So firstly identify your end goal and then formulate a plan to get you there in a time frame that works for you.
You see… property investment, as with any other journey, requires you to know where you’re heading and how you intend to get there.
Unfortunately, most investors don’t have a plan and that’s why they get lost along the way or get distracted by the latest investment fad or the next “hot spot.”
And if they do have a plan, I’ve found they rarely review it to make sure they’re on track.
2. What is my preferred strategy?
Once you know where you are going, you need to implement an investment strategy that helps you get there.
Since you can’t save your way to wealth so my goal is to build a substantial asset base through capital growth.
My 4 stranded strategic approach to achieve this is that I would only buy a property:
- That would appeal to owner-occupiers.
Not that I plan to sell the property, but because owner-occupiers will buy similar properties pushing up local real estate values.
This will be particularly important in the future as the percentage of investors in the market is likely to diminish.
- Below intrinsic value – that’s why I’d avoid new and off-the-plan properties which come at a premium price.
- With a high land-to-asset ratio – that doesn’t necessarily mean a large block of land, but one where the land component makes up a significant part of the asset value.
- In an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area including gentrifying areas.
- With a twist – something unique, or special, different or scarce about the property, and finally;
- Where they can manufacture capital growth through refurbishment, renovations, or redevelopment rather than waiting for the market to do the heavy lifting as we’re heading into a period of lower capital growth.
3. What type of property?
This will depend upon your budget and while, in general, houses deliver stronger capital growth than apartments, this has a lot to do with the location of your property.
I’d rather own a villa unit, townhouse, or apartment in a great neighbourhood in an inner or middle ring suburb than a house out in the sticks
Today more people are trading their backyards for courtyards and balconies to be situated in the right locations.
4. Should I buy something old or new?
More often than not, new or off-the-plan apartments are a “box” in a high-rise monolith.
The problem here is that you pay a premium to the developer and miss out on the first decade or so of capital growth.
At the same time, the majority of owners in the building are likely to be investors. I prefer buying where owner-occupiers, who look after the building better, predominate.
If you haven’t guessed it by now, I prefer to buy an established apartment, in a character-filled block, which has the potential to be “tarted up” with cosmetic refurbishments.
This gives you the potential to not only increase your rental income but also “manufacture” some capital growth.
5. Where should I buy?
Location is critical to the long-term performance of your investment.
I look for suburbs that have always outperformed the averages or ones going through gentrification.
These are generally lifestyle suburbs in major capital cities close to the CBD, amenities, or the water.
And the significance of neighbourhood has only become more important.
It seems that in our new “Covid Normal” world, people love the thought that most of the things needed for a good life are within a 20-minute public transport trip, bike ride, or walk from home.
The ability to work, live, and play all within 20 minutes’ reach is the new gold standard desirable lifestyle.
Imagine being able to carry out your daily activities within a 20-minute walk from home. All the things you need in a day would be just a short walk away.
Things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs.
In urban planning circles, it’s a concept known as the 20-minute neighbourhood.
Once I find these locations, I then drill down even further and chose the best spots in those suburbs.
6. When should I buy?
There’s no sense in trying to time the market, even the experts can’t get it right.
Instead, the right time to buy your next investment property or home is when you’re in the financial position to do so
7. What can I afford?
Before you start looking at what to buy, you need to know what you can afford to buy.
Get a loan pre-approved and make sure you’ve set some funds aside for acquisition costs, holding costs, and a financial buffer for a rainy day or rising interest rates.
8. How will I set up my purchase?
It’s important to own your investment property in an entity that protects your assets and legally minimizes your tax.
Whether you buy in your own name, your super fund, or a trust, you need to be aware of what it will mean for you and your family, now and in the future.
That’s why it’s important to get independent finance and structuring advice before you buy your property.
9. Who should I ask for help?
If you are the smartest person in the room, you are in the wrong room!
The real estate game is a team sport, requiring expert input and advice from a qualified accountant, a smart solicitor, a finance broker, an independent property strategist, and a mentor who will help set you up for a win.
In other words, to secure your financial future you’ll need much more than just a buyer’s agent or a property strategist.
My team at Metropole offers a 360° holistic approach to ensure you Grow, Protect and Pass On your wealth.
We customise a solution to meet your specific needs through a time-tested 360° system for acquiring wealth and help beginning investors buy their first property, experienced investors add to their portfolio and sophisticated investors manufacture capital growth by becoming property developers.
10. Should I take advice from my friends and family?
In general, the answer is – no!
Not unless they’re a particularly smart investor having invested successfully through a number of property cycles.
This is because “the crowd” is usually wrong.
When everyone’s optimistic, people come out of the woodwork keen to give well-meaning advice, however, investors tend to be most optimistic at the peak of the cycle – when the risk is the greatest.
Just like they are pessimistic at times when the property market is flat and the risk of further downside is low.
As our real estate markets pick up and the cycle moves on, a whole new generation of investors will enjoy the prosperity property can bring.
If you ask the right questions you could be one of them.
So what will you do about this?
Owning real assets is a powerful wealth creator and with our property markets moving on a whole new generation of property millionaires will be created over the new decade.
However, if history repeats itself, and it most likely will, most people who get involved in property investment will not become financially independent.
Many will buy the wrong property or at the wrong time or in the wrong location.
With so many mixed messages out there about what type of what makes a good property investment it’s hard to know who to listen to.
It’s hard to know who to trust.
In “interesting” times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s exactly what you get from the multi-award-winning team at Metropole.
ALSO READ: How living locally and the rise of the 20-minute neighbourhood will ensure some suburbs outperform in 2022.