Have you ever wondered why some property investors come out on top? Whilst others fail miserably?
Astute investors follow these 6 steps time and time again, enabling them to master the art of property investment.
1. Have A Strategy.
It's important to know why you want to be a property investor and that all comes down to your strategy.
Do you know what you are aiming for and how you need to get there?
If you are investing to have a nest egg in retirement, you can work out what you will need to support your preferred lifestyle.
Whereas, if you need $100,000 a year and your investments are returning you 5% per annum, you will need a $2,000,000 portfolio.
Overall, you should start at the end goal and work your way back to what needs to be done right now. You can plan that…. map it out. Remember, if you fail to prepare, you should prepare to fail.
2. Know Your Budget.
Knowing your budget doesn't just come down to the cost of the investment property, but rather the serviceability of the mortgage.
Most property investors fail because they can’t hold their property investment when things get tough.
It's imperative to be able to hold the property even when interest rates rise, rents can fall, and vacancy can arrive. Also, you should use conservative assumptions when working out the numbers before engaging in any property purchase.
3. Have A Good Team.
Don’t listen to friends, family, or the media. Instead, have experienced people guiding you. Experts in their field who have a proven track record of success.
These professionals may include:
Mortgage Brokers or Bank Managers
4. Do Your Due Diligence.
The criteria involved to de-risk any property investment is substantial.
Investors very rarely have adequate time to examine all the macro and micro fundamentals required for a strategic and successful property. Instead, they rely on reputable researchers who can verify all the criteria.
Remember, don’t simply trust anyone, do your homework on those professing to do the due diligence.
5. Don’t Over Or Under Capitalise.
It's tricky to get the balance right. An investment property is not your primary place of residence, instead, it's a strategic way for you to make money with little to no impact on your life.
Taking this into consideration, there is no need to go crazy with the fixtures and fittings within the property as you will overcapitalise on the property.
Conversely, you wouldn't want to undercapitalise as this may risk the opportunity of attracting the right tenant or owner-occupier when selling.
Remember, a good balance is essential.
6. Be Patient.
The longer you can hold a strong performing property investment the better!
Property cycles don't swing around quickly so one needs to be patient.
You may see 6-8 years of little growth and then as the macro fundamentals align, “suddenly” see that growth arrives.
Far too often I see investors do the heavy lifting, only to lose patience and sell. Let it grow over time for nothing works better than compounding interest in a good investment. Let it ride!
I hope you found these 6 steps useful and start to take some or all of them into consideration for your first or next investment property.
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Warren Jacobs - Senior Property Investment Consultant at Meridian Australia
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.