Buying one investment property does not make you a successful property investor.
In fact, we unfortunately see some of our clients property investing mistakes due to not being smart with their property investing decision making (and don’t worry, we’ve all made investing mistakes – but these mistakes hopefully make us all better investors!).
So how do we become smart property investors? Michael Yardney from property advisory specialists Metropole recommends the following “5 Pillars of Smart Property Investing”:
A Smart Investor thinks strategically
Before you invest, you must have a strategy. Your strategy is dictated by the goals you set. You hear many times that people who are successful in any field (sport, investing, business, health) have a history in setting goals.
Set yourself a plan of where you want to be in 5 years, 10 years, 15 years. What level of net rental income do you want per week? What is the level of net property assets you wish to own? By setting goals you at least give yourself something to aim for and measure your progress against.
From there, all decisions you make will be based on the goals you are trying to achieve. What type of property do you wish to purchase? What level of initial rental yield do you require to make it affordable? What is the preferred purchase price to suit your budget?
This process also helps to take the emotion and hype out of your decision making.
A Smart Investor manages their risks
Managing risk in property investment can cover many factors:
- Prior to purchasing a property have you had a building and pest inspection?
- Have you researched the market value of similar houses in the area to determine whether you are not paying too much for your property?
- Have you also researched the market for likely rental returns for your property?
- Have you “stress-tested” your cash flow budgets to take into account missing 4 weeks rent per year or interest rates being 1% more than current market rates?
- Have you got income protection insurance and appropriate property and landlord insurance to cover potential risks?
- Is the property in the correct taxation structure? etc, etc, etc.
A Smart Investor invests against the grain
Property markets move in cycles so a smart investor will understand this. You must be careful not to be caught up in property clubs or attractively advertised “get-rich-quick” property schemes. You must be well researched to understand what they key drivers of capital growth and rental growth are for a property.
As previously stated by me previously, I can strongly recommend people purchase Margaret Lomas’ book “20 Must Ask Questions for every property investor” as well as subscribing to Terry Ryder’s property research website www.hotspotting.com.au.
A Smart Investor reviews their portfolio regularly
Analyse the performance of your investments, both income yield, capital growth and net cash position. Don’t ever get complacent!
- Is it costing you money every year to retain?
- Is it a dud and would you be better off selling it?
- Is the area still an attractive area to own property due to demographics or future infrastructure plans for your area?
- Is there any way you can improve the property to get an increased rental return? (Eg put in a split system air condition for $2,000 to get an extra $10 per week rent – this is a 25% return on investment!)
A smart investor surrounds themselves with a team
All this means is don’t think that you alone know all of the answers and do not cut corners! Be cautious and well researched.
A successful investor has access to property research information, a very good accountant who understands property investment (preferably because they’re investors themselves) and a banker/finance broker who understands what the investor is trying to achieve. Lastly, it is a great advantage to have a property mentor or fellow property investor to refer to and bounce ideas off.
There is lots of great information out there such as blogs, research, emails and websites. You will continually see me referencing Jan Somers, Margaret Lomas and Terry Ryder. If you do not know where to start, then Google these 3 people and you can access some wonderful research and information from them.
Good luck with your property investing. If you need to access an accountant who understands property investment – contact the team at Green Taylor Partners!