Knowledge is
Property Investment Power
Firstly you need to understand what makes a good property investment
and recognise that not just any old property will do.
You can profit from real estate in one of four ways, and if you get the combination right you’ll make money. They are;
- Capital Growth – to build yourself a sound asset base your properties will need to appreciate in value at wealth building rates (in other words above average capital growth). This will come from strong demand from owner occupiers (who push up property values) and tenants (who help you pay your mortgage.)
- Cash Flow – in other words your rent.
- Tax Benefits – while you should never invest solely for this reason; a good tax strategy can help you manage your cash flow, decrease your tax obligations and increase your bottom line.
- Accelerated Growth – getting your hands a little dirty (metaphorically speaking) by investing in a property that needs a bit of cosmetic TLC through renovations or a major facelift through property development, is a great way to manufacture capital growth.
Cycles
While timing the market is not the be all and end all, it certainly
helps to understand how the property market moves in cycles.
Following the herd and buying when everyone else is on the property
bandwagon doesn’t always work. That’s often when the market is near
its peak. On the other hand you have more chance of nabbing a good deal in a
buyer’s market, when property is out of favour. That’s why Warren
Buffet said “Be fearful when others are greedy and be greedy when others
are fearful.”
Location
Location can make or break a property investment. But what is the
right location? These are generally areas that will have strong ongoing demand from a wealthy
demographic of owner occupiers who can afford to and are prepared to pay a
premium to live in good locations. Some of the major drivers of this type
of capital growth are:
- Proximity to the city
- Proximity to the sea
- Adjacent to a prime suburb
- Amenities’ such as proximity to a train station, large shopping centre, within the zone of a highly sought after public high school.
- Suburbs that contain period style homes e.g. Californian bungalows, Victorian, Edwardian style homes.
Money, Money, Money
A sound financial strategy is as important as a sound investment
strategy when it comes to property. 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.
It’s important to set aside a cash flow buffer in a facility such as
an Offset Account or Line of Credit, to cover you for a rainy day.
Financial Fluency
While you could make lots of money in property investment you
could also easily lose it. If you are financially illiterate when it comes to managing money,
budgeting and even balancing the books at home, how do you think you’ll
go when it comes to a multi-million dollar property portfolio?
You may need to learn the ins and outs of taxation and the financial advantages you can enjoy as an investor, as well as the best structures to own your investments in, such as personal, company and trust set ups. Rather than trying to learn it all yourself and wear numerous hats, it’s worth surrounding yourself with a good team of professionals who can guide you with their knowledge and expertise, such as an Accountant and Solicitor with experience in such matters, a finance broker/ banker.
Final Words of Advice (or Warning) for investors
- Formulate a plan – understand what you want to achieve and then make investment decisions accordingly.
- Be cautious –You’ll find everyone is happy to give you advice. Rather than listening to well meaning friends, it’s important to only listen to people who have achieved the financial independence you’re looking for and who have maintained it for a period of time.
- Understand the difference between a Sales Person and an Advisor. Many Sales people are cloaked as Advisors and suggest they are representing you the buyer when in fact they are representing the Seller or a Property Developer.
- Be prepared to pay for advice – it’s much cheaper than learning from your mistakes.
- 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.