Five Keys to Smart Property Investment
Property investment is never something you should ever enter into lightly. But for some reason, that’s what a lot of people who have dreams of making millions through property do.
They often think, ‘I can go out, buy a house somewhere, stick some tenants in it to pay the mortgage and make a ‘motza’! How hard can it be?’
The fact is if you’re considering getting started in property investment, you have to put in the hard yards before you even think about signing on the dotted line and securing the first property for your portfolio.
You can jump in feet first, but there’s something to be said for the saying, ‘fools rush in where angels fear to tread,’ and let’s not forget the saying that reminds us ‘patience is a virtue.’
Danny Buxton, Founder of Triple Zero Property lists five factors to consider before you put your foot on the property ladder.
1. Knowledge is power
First and foremost, before you do anything else, you will need to understand what makes a good property investment and recognise that not just ‘any old digs’ will do. Research is paramount and something we work very hard on with our clients. Key is not about buying on emotion and with our heart but buying smart, with our head.
Regardless of what well-meaning friends or family might tell you, there are four key ingredients required to make money from bricks and mortar. Like a good recipe, you have to combine them all in just the right way if you want to enjoy the benefits of property investment. They are:
Capital Growth – your investment must have either proven history or compelling data of strong appreciation due to the location & demand.
Cash Flow – you have to manage this correctly with every investment, including getting the right tenants and rental income as well as creating a cashflow buffer and avoiding over-capitalising on a property you can’t afford.
Tax benefits – while you should never invest solely for this reason, a good tax strategy can help you manage cash flow, decrease your tax obligations and increase your bottom line.
Accelerated Growth – finding the right property development option that will see immediate growth in the building and development of your property. It doesn’t need to be a big project, just a smart one.
2. Understanding Cycles
While timing the property market is not the ‘be all and end all’, it certainly helps to know when you should never invest and when you should always be prepared to invest in the right property.
Following the herd and buying when everyone else is on the property bandwagon is an ill-advised move.
When things are slow, you have more chance of nabbing a great deal without having to worry about competing against other homebuyers and investors.
Many property millionaires have made their riches by going against the tide and taking calculated risks – remember ‘fortune favours the brave.’
Don’t forget; it’s time in the market, not just timing the market where you make the real money! Those chasing the ‘get rich quick property fix’ often find themselves in big trouble and lose a lot of hard earned money.
3. Location, supply and demand
Location can make or break a property investment. But what is the right area?
The only way you’ll be able to answer that question is with research.
You need to find out about the historical movements of the local market, the primary demographic who lives there and ask yourself, is there more demand from homebuyers than there are properties for sale?
When demand outweighs supply, you have the prospect of good long-term growth.
Educate yourself by reading, subscribing to research (like hotspotting.com.au or htw.com.au) and engaging the services of an independent property expert who not just talks the talk but also walks the talk.
4. Money, money, money
A sound financial strategy is as important as a sound investment strategy when it comes to property, they go hand in hand.
Without a well rounded understanding of how to maximise your borrowing power, use equity as a leverage to build your portfolio and maintain a financial buffer to see you through the difficult times that we all ultimately face, you are setting yourself up to fail financially.
A lot of people think they can draw the equity from their own home and sink it into an investment property, but have you considered how the bank will look upon your loan application
Do you have a respectable credit history, and can you service the debt you intend to take on?
These are all the types of questions you have to ask yourself when it comes to financing a portfolio.
This is where an experienced, proficient financier who understands property investment can be worth their weight in gold. It’s why we only work with the best.
5. Get Financially Literate
You can make all the money in the world through property investment and lose it just as readily. We have all heard the horror stories but only seem to remember the successful ones.
Are you financially illiterate when it comes to managing money, budgeting and even balancing the books at home? How do you think you will go when it comes to building a multi-million dollar property portfolio?
You need to learn the ins and outs of taxation and the financial advantages you can enjoy as an investor. Also, the best structures to own your investments in, such as personal, company and trust setups.
Rather than trying to learn it all yourself and wear numerous hats, it’s worth investing some of that money into an excellent team of professionals who can guide you with their knowledge and expertise.
A property specialist, financier, accountant and your legal team should all be people you rely on to support you in the journey to property success. If you’re the smartest person on your side, you’re in trouble!
So, what now?
1. Formulate a plan – understand what you want to achieve and then make investment decisions accordingly.
2. Be cautious – you’ll find everyone is going to give you advice. Rather than listening to well-meaning friends, it’s important to only listen to people who have achieved the success you are looking for and who walk the talk.
3. Understand the difference between a salesperson and an adviser. Many salespeople are cloaked as advisers and suggest they are representing you the buyer when, in fact, they are representing the seller or a property developer. Independence and experience are key here (refer again to point 2.)
4. Be prepared to pay for advice – it’s much cheaper than learning from your mistakes.
5. Not everything that glistens is gold – often when you start out it can be tempting to see opportunities everywhere. The problem is you don’t yet have the perspective to decide what is a good investment and what is not.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on.
In challenging times like we are currently experiencing; you need a team who takes a holistic and personal approach to your property and wealth journey. Call Triple Zero Property on 1300 897 000 for an obligation-free consultation and take the first step onto the property investment ladder.
This content is general information only. Your situation is specific and individual, as such, you should always consult a registered and qualified professional within the specific area of advice needed.