by Stephen McGee, Director and Queensland State Manager
We`ve all heard and read a smorgasbord of “topical noise pollution” lately, on what to buy, where to buy and which (states) property cycles are “in front” right now. Honestly, it`s a wonder that the majority of Australians can get past their own front door when they think about property investing.
Did you know that ABS data shows that 1 in 7 Australians own an investment property (1.7M out of a population of 24M) but less than 1% of these own more than 1 and only .06% owning more than 6! What is also newsworthy in this regard is that 25% of these investors SOLD within 12 months of purchase and 50% sold within the first 5 years of ownership.
If we could ask this 25 % why they sold – I would guess that only a few of the reasons these “fly in fly out” investors were selling were for legitimate unforeseen cash flow reasons but for the main part I would think it was down to non-performance of property growth and/or it occupied too much of their time to keep an eye on.
In all my 13 years as a Buyers agent/Investment strategist, I have never met a property investor who wants to create wealth through property from the purchase of a single solitary investment property. So my thinking is that they all jumped into the property investing arena with their eyes wide shut and were not prepared for the unexpected.
With that in mind, I thought I would try to help by listing some of the key things that I believe are crucial to property investors when thinking of becoming a property investor and then when they are ready to buy.
- Invest in yourself. Take time out to educate yourself a little- attend seminars- read books. Knowledge is power – but not too much – don’t get Analysis Paralysis.
- Make a time to sit with a finance broker to get an idea of your borrowing capacity and then determine what your comfort level is (this is the maximum figure for your purchase – one that you can afford to pay the loan interest on for two months at least in times of prolonged vacancy) Finance is a bit tricky at the moment with all of the recent APRA changes and tightening of lending but a meeting with an experienced investment savvy broker can walk you through the maze of different lenders and find one best suited for you.
- Have a Buffer in place to assist you with the months that you may need to chip in some funds to support the investment. It may also ease tax time to keep this buffer for the investment only- don’t mix the use of funds.
- Make a time to sit with an Accountant who is well versed at property ownership structures. This is important for a number of reasons including maximising the tax benefits through efficient ownership structures/ Asset Protection
- Decide which type of property investment you are after. Armed with information from #3 and #4 decide on which type of property investment it is that you are after ie: Capital growth VS Cash Flow – and evaluate each. For mine it is all about Capital Growth – I would rather have a property yielding 5% per annum capital growth and 4% rental yield than 4% capital growth with a 5% rental yield. Do the numbers yourself and see how it works.
- Get your broker to arrange for pre-approval for the purchase from the lender and make certain that both the property ownership structure and the loan for purchase are in sync with each other.
- Engage with a LOCAL Property buyers agent for your purchase. Make a time to sit with an experienced and independent buyers agent/investment strategist. I also would suggest that “experience” should correlate to at least 5 years in the industry. This way it is acceptable to assume that they have knowledge of recent property cycles in their areas.
Don’t be fooled into buying into an area/state that the buyers agent does not operate in daily. The reasons for this are many but the most important factor is “Local Market Knowledge” and that they can tell you that they have “walked” the property and the street itself. You see not all areas are created equal—It is all good being told that “ this data shows that this area is on the rise” and “this area is pegged for massive future growth” but truth be told all areas have best performing “pockets” and streets in these pockets performing better than others.
For me, it is also important (also for my clients) that we get to walk in the property ourselves so we can feel the property face to face. National Property Buyers have invested ourselves in the 4 of the major capital cities so we can inspect the property face to face – before we buy for our clients. We are not just “order takers”.
- Do not follow the herd… If you buy where the majority of investors buy, you will get what they get – increased competition for tenants and more volatile house pricing. It’s a fact that 67% of property transactions in Australia are accredited to owner-occupiers. So why put your money in a pot that is accountable for only 33% of the wealth in property. Follow the wealth and your property will grow in value, always remain stable (even in a slow market) and will always attract a sustainable rental income. Importantly, it also has a greater chance of obtaining a higher value on sale than purchase if the need arises for quick sale.
- Buy the right property, in the right area at the right price and keep reviewing the performance. We all know that you make the money in real estate when you buy not when you sell – so again to highlight the importance of (#7) a local expert on your side will set the negotiating range for the property and use their best endeavours to secure it under this figure. Then, assuming that it is located in a sustainable growth area and you have secured the service of a skilled Asset/Property manager, all you need to do is wait for 12 months (sometimes less) and have your investment strategist review the value to determine its performance and your potential ability to buy again.
I know how all of this or even a few steps in this process can appear to be a little “too hard” but that’s fine – if it was easy then everyone would be a property investor. What I am happy to tell you is that NBP can assist you with all of the introductions to the professional alliances that you will need to make sure that you are building the right foundation on which to start your property investment journey. Then we can assist with probably the most important part of the journey – the property selection and purchase.