Property investment is seen by many people as a DIY path to financial security. We’ve all pretty much bought or sold a home, been a tenant or dabbled in investment, so most Australians feel capable of trading real estate.
For this reason, plenty also believe investing is a relatively simple affair. Find a property, sign a contract, settle on the purchase, choose a property manager… then sit back and let the wealth build.
But those of us who work daily in this industry know it’s far more complex. Experience is a great teacher and I have learned some tough lessons during my years as an investor and advisor.
Here are my top twelve tips for property investors.
1 – Failure to plan is a plan to fail
It astounds me the number of people who launch into an investment without first setting out a clear strategy for reaching their goals.
I’ve seen statistics from MCG Quantity Surveyors which showed around one in five landlords were ‘accidental’ investors. They’d simply not sold their home when moving on and kept it as an investment. While this can kick off a portfolio, it does reek of having no plan when it comes to this important financial decision.
What are you purchasing and where? What will it achieve? How will you next proceed?
Setting out a strategy should be tackled before you buy your first investment – not after you’ve acquired a few.
2 – Know your numbers
Before you purchase, know some important numbers. The most crucial is how much you can borrow, the market value of what you’re purchasing and what you can afford to invest.
Buying a property without understanding all these figures is a sure path to paying too much or overextending yourself. Don’t go broke before you start by going big too early. Small steps and well-chosen assets can yield huge long-term results.
3 – Think about cashflow
It’s not just when buying that you must pay out the dollars. There are ongoing costs associated with investing that will test your cash flow and household budget. Think maintenance, council levees, taxes and mortgage repayments. Before you buy a property, understand what sort of rent you’ll need to generate, and how much of your own income you’ll have to contribute, to help cover ongoing expenses. Without this knowledge, you can actually go broke while holding an asset with excellent value growth potential.
4 – Remember the tenant
Selecting an investment means you must understand the needs of your potential tenant. Know who is renting in the area where you’re buying. What do they want in a property? Are they family households or young professionals? Do they need multiple living spaces? Will a home office be essential?
Being across this allows you to choose the right asset for maximum rental return and high demand among the tenant pool.
5 – Never buy for a tax break
While investors might think they’re being smart in selecting properties with excellent tax breaks, it usually means they’re not looking at the whole picture.
For example, negative gearing works best when you are in a higher income tax bracket and the property you purchase has exceptional growth potential. Buying just any old property simply to try and reduce your tax might look OK on paper, but it may also see you overpay for a substandard investment.
6 – Reno profits are for reality TV
It looks tempting on TV, but the truth is unless you’re particularly skilled in property selection, have affordable trades on hand (along with some practical skills of your own) and are related to an agent who’ll sell your property at a discounted commission, you won’t make much money flipping houses.
Most of the ‘renovation gains’ made during these television shows are because of an already rising property market. All that hard work, time and expense often add relatively little if you run the numbers properly.
There’s also the opportunity cost to consider. When you take a week off work to paint your flipper, you are doing yourself out of regular income and/or holidays (and probably delivering a below-par paint job too).
7 – Property managers are the key to success
The link between you and your investment is your property manager. They help select tenants, set the rent, maintain the property and ensure you and the resident comply with legal and legislative responsibilities.
Choose your manager wisely. Look for reviews, ask past clients and select the one you can work with, not against. Good management will put you ahead by tens of thousands of dollars in the long run.
8 – Multiple assets boost outcomes
It’s surprising for most to hear that of Australia’s 2.1 million real estate investors, about 70 per cent own just one investment property.
The percentage reduces substantially as you go toward owning two (19 per cent) or three investments (six per cent). In fact, people holding six or more investments only equated to about 20,000 Australians in total, or less than one per cent of all investors.
This is a shame because most experienced investors will tell you, that properties one and two are probably the most difficult to secure.
Smart Investors know about the magic of compound interest where the value of your asset goes up exponentially as you build and retain equity. Well, those results are heightened by holding more assets. There’s also the advantage of diversification to help boost the upsides and mitigate the risks.
So, don’t stop at one. Find ways to buy more properties as your journey progresses.
9 – Have an A-Team of advisors
You will be an expert in your own field, whether that be as a white-collar professional or a blue-collar worker. There are few others who can do what you do as well you do it.
In the same way, property professionals and advisors are the best in their fields, and they can be employed to represent your interests. You don’t need to be an expert in investment when you have property investment advisors, accountants, conveyancers and property managers on hand to help.
- Your strategy is your anchor
While I alluded to setting out a strategy before you buy, it’s essential to be able to both stick and pivot as needed throughout your investment journey.
Your strategy is a long-term roadmap to financial independence. You should use it as your blueprint for all investment decisions. This doesn’t mean you can’t flex when needed to secure an excellent opportunity or hold back to avoid risks. Just be smart and stay the general course to reach your eventual goal.
- Investment is no place for emotion
All too often investors buy property they would like to live in rather than something which presents a great investment opportunity.
You see it all the time with investors only buying in the suburb or region where they live. Familiarity breeds a sense of security, but not necessarily maximum returns.
So… rely on the numbers. Do fearless and frank analysis and choose the assets that will give you the best results. Don’t fall into the “Would I live here?” trap.
- Buy, don’t be sold
Remember that real estate agents, property advertising and listing portals are all designed to sell your property. I believe clever investors flip the script and instead, seek out the property that best fits their needs.
So don’t be sold to. Instead, use the help of qualified investment advisors such as a QPIA professional. Engage them to work on your behalf to assist in seeking out the best option for your needs.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy, never be SOLD an investment, know your numbers!
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933