There’s many myths out there about property investing, so today we look at what successful investors do that novice investors don’t.
1. Think long-term for wealth
While many race out and get that dream car on hire purchase, we all know deep down that delayed gratification leads to a better financial position and a better lifestyle.
Scott Pape, Australia’s most successful finance author, told press: “the art of saving is as much a financial technique as it is a character trait”.
And there’s no better target for that saving habit than a solid asset, like property. Property investing has been proven over the long term—100 years plus. That means it’s given more credence by the banks when used as collateral.
Longer investing time-frames, with stable and quality assets, always wins over trying to ‘time the market’ to buy and sell.
2. Invest, rather than speculate
Even though they may prefer the term ‘investing’, many property investors are actually speculating or trading.
All investment carries inherent risk, and it’s important to minimise your risks as you maximise your returns. Yet the average new investor buys property with their heart, feeling safer with a property ‘close by’ or something they would like to live in. Few research the market thoroughly. They hope that the local market will grow, but they don’t have any rational basis for that hope.
Some look for a rising hot spot, trying to buy before a boom. But hoping for good market conditions to make a profit is still speculating – whereas smart investors make educated decisions.
They offset the risk by increasing their knowledge of the areas and adding to their financial literacy. They buy a property below its true value, in an area that has above average long-term capital growth. Then many will add value through renovations, thus creating extra capital growth.
3. Stay on track with property strategy
Successful investors stay on track with strategy, buying the best property they can in sought-after locations. The property often reflects the new gentrification of the suburb itself. They don’t tend to get distracted by Bitcoin, booms, or tax minimisation strategies. Whereas those investors who go for rental guarantees, holiday-sharing, or speculating on ‘off the plan’ apartments are likely to forgo a much bigger long-term profit.
Sophisticated investors will also hire a property manager who ensures the maximum rental returns, as part of their strategy.
4. Understand capital growth versus yield
Pundits have argued for years over capital growth versus cash flow, experienced investors believe the way to eventually become financially independent through property is to build—and pay off—an asset base.
Yield from good rental is still important – as it helps pay the mortgage and costs and proves to the bank you can afford it, but in the end, capital growth on a large asset base will make the most difference to your financial independence.
The Three Life-Stages For Property Wealth
Most savvy property investors realise there are three life-stages for property wealth:
- Invest in solid assets that are growing at roughly more than 5% p.a.
- Pay off some of the debt and/or increase equity through renovation
- Payday: paying all the investor’s living costs from the property portfolio cash-flow.
5. Choose or Renovate an ‘A Grade’ Property
The location choice is certainly always important, and experts believe that buying an ‘A-grade’ rental property makes it easier to get a better than average return. It is one that buyers will always go for, and renters will like to live in.
“An A-grade property will go up at more than the median house price, and if everything goes down, it’s going to go down less than the median. So it will always perform better than the median.”
– Bryce Holdaway, Location, Location, Location (savings.com.au)
This compares to the duplexes that people are often sold at investor seminars, those really far out. Besides a cookie-cutter house in an edge-of-town location, properties that are labelled a C-grade might be located on a main road or on a steep block and so have little appeal.
6. Buy properties that will be in strong demand
Two-thirds of Australians live in their own home while the remainder are renters, according to reports from the Australian Bureau of Statistics (ABS), so it’s important to consider what owners like.
While home-owners buy with their heart, sometimes paying beyond the market rate, investors in some urban areas have been left high and dry when ‘new apartment’ rental demand dries up and the glut has led to poor resale prices.
Remember to focus on owner-occupier appeal, but that doesn’t always mean a 4-bedroom home, as we’ll see below.
7. Know the changing face of Australian cities
When I was very young, most people lived in a house on a nice big block with a garden.
Today, there are more one- and two-person households, and more people than ever live in apartments and townhouses. Young people get married later in life, move many times through their life, and also live longer.
Coming from countries with less room to move, a lot of migrants coming to Australia are comfortable living in apartments. They want safe and clean low-rise apartments and townhouses close to workplaces.
Who’s got time for weeding gardens? A roomy balcony or rooftop garden is the new backyard.
8. Get support from a great team
Besides adding to their own education, successful property investors surround themselves with a team of specialists rather than salespeople.
Most are prepared to pay for solid advice. When their portfolio is growing, they then can rely on their property manager to vet tenants and keep the rent coming in. They also seek a good conveyancer, a finance broker, and a quantity surveyor, with each being a specialist focused on getting the best deal for them.
9. Real estate investing takes a holistic approach
There are a lot of investors who buy one apartment, in fact, ABS reports that 71% of all property investors buy only one property (2018/19). Many new investors make the mistake of buying one of a bulk lot of apartments sold off primarily to investors. But that is not a wealth-building strategy.
Long-term investors buy more than one property, which diversifies risk, and in different parts of the country. They also set up financial buffers, like offset accounts or approved lines of credit, to help ride out dips in the property cycle.
10. The property market is cyclical
Remember the last boom? You were mad if you had a job and didn’t get into property in a capital city. But all property markets move in cycles, some bigger and some smaller. During a downturn, investors flee the market and prices dip or freeze.
While most of us busy workers forget this cyclic nature, contrarian investors know that during a pause or recovery (when sharemarkets are rising) it’s the time to hunt for undervalued properties.
While most are looking the other way, that’s when savvy investors go bargain hunting for good properties.
Did you agree with these property investor rules? Guidelines will help, but if you want less to worry about when it comes to managing your property, then talk to Beyond Property Management about your objectives. We don’t think like regular property managers, as we too have invested in property and seen what makes a good manager. Read more about Our Differences.