Some people might have you believe that investing in property is a simple process.
You read a bunch of media and online commentary about great places to buy, go to your favourite listings portal, pop in the search criteria and a flood of opportunities present themselves. Select something within your budget and then – hey presto – values rise, rents increase, and you are on your way to multi-millions in real estate.
But hold on a moment tiger. Good sense should tell you that a range of factors must be taken into account when selecting an asset – and it’s not all about the market.
In fact, if you aren’t adopting a holistic approach to your asset choices you will, at best, be leaving money on the table. At worst, it could see your financial future torpedoed by a lousy selection.
Here are four important holistic considerations around asset selection
- Plan to succeed
Benjamin Franklin said, “If you fail to plan, you are planning to fail.”
He was one smart cookie.
One of the worst mistake first-time investors make is putting the cart before the horse and buying an investment without fully understanding their personal goals.
Planning involves a full and frank assessment of what you want to achieve, the time it will take to get there and the resources you have at your disposal. With this information to hand a trained advisor (such as one who holds a Qualified Property Investment Adviser (QIPA) qualification from the Property Investment Professionals of Australia) can plot a path that will lead to your desired outcomes.
This planning step is crucial, because if you don’t have a plan to follow, you will buy the wrong type of investment at the wrong time in your journey – and that can bring disastrous result.
2. Follow the strategy
Now you have a plan, follow it. By staying on track, you can determine the correct type of asset for your circumstance at particular times in your life.
For example, if you are young and starting off with investing, you may need a low-priced, moderate-growth, high-yield asset. Why? Because your income levels haven’t yet peaked, so servicing a large loan will be difficult without a decent rental return.
Later in your journey, you may be looking for a more expensive investment with higher capital gains potential. This is a time when your income levels are on the rise and provide more comfort to financiers as well.
There are various other stages along the journey and each requires a particular type of holding to be added to your portfolio.
Stick to your plan… but don’t follow it off a cliff!
Proper planning and execution required ongoing assessment so you can pivot and flex your approach to address any challenges and changes that occur.
Perhaps children suddenly need to be factored into the equation. Alternatively, you might come into an unexpected financial windfall, or receive a once-in-a-lifetime job opportunity.
All these events require the ability to alter your plans and reassess what assets will work best for your new circumstances.
3. Look for advantages
Seek those asset types that provide opportunities for you to profit sooner through assistance packages or tax advantages.
For example, I recently uncovered a strategy called Livevesting(TM) which is being adopted by young investors. Livevesting(TM) sees mostly first-time buyers looking to purchase their initial home on the basis of its long-term investment potential. By selecting the right property, they can draw on assistance schemes like HomeBuilder, first home buyer grants and stamp duty discounts. These reduce the buy-in cost of the property. Then, after a suitable period of residence, they’ll retain the home as an investment, thus kicking off their portfolio with an excellent asset.
Other schemes such as negative gearing might be helpful in your portfolio if you’re a high household income. But again, asset selection is crucial. Negative gearing is a great way to lose money if you don’t buy the right property.
There’re also those often-underutilised tax breaks identified via depreciation schedules. Almost every property will see their fittings and fixtures depreciate in value as they age. This depreciation can be utilised to write of thousands of dollars in your annual tax return. Again, a QIPA advisor can help guide you on this.
So, look for the angles that help you make the best choice of investment.
4. Not all property is equal
Be aware that not all property within the same suburb offers equal opportunity to each investor.
For example, ASPIRE advisors will identify a great location based on analysing a swathe of information, from population densities and average household income, to median price growth and yield.
But from there it’s still possible to buy badly. Even the same type of property within the same growth suburb can yield different results.
For example, your investment strategy might indicate a new townhouse as the best investment option, so you troll the listing pages to choose an asset.
But if you look at price alone, you could be on a path to disaster. You might think a two-bedroom, single carport townhouse at a below-median price seems like a great option. However, if you’re buying in a suburb where the majority of renters are young professionals with children and two cars, then you actually need to purchase a well-built, three-bed townhouse with a double lock up garage. This asset will also provide the best potential resale value to an owner occupier when it comes time for you to sell too.
As you can see, selecting investments isn’t something that should be done with a dartboard and a blindfold.
Choosing the best asset for your portfolio needs a balance between your personal circumstances and the attributes of each opportunity on offer.
The best way to ensure you are getting the most out of your property investment plans is to talk to an ASPIRE Accredited QIPA qualified advisor who can look at the whole picture and help you secure the best property for your strategy. By following a structured investment process, such as the ASPIRE Property Advisor Network Process Below can help maximise the ability for success. Property investment always should start with you the investor, not a property being sold as an investment.
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, never be SOLD an investment.
Visit www.aspirenetwork.com.au or call our office to be connected with a Property Investment Advisor on 1300 710 933.