Today you’re going to learn six advanced property investment tips and techniques.
In fact, these are the same tips I’ve used to grow my portfolio to five investment properties in a few short years.
So let’s dive right in.
1. Have an investment plan
Many property investors think buying real estate as nothing more than sticking some money into an asset that is guaranteed to go up.
‘Just get a foot in the door and you’ll make money from property’, they say. So what about those investors that got their foot slammed after investing in mining towns? Or bought off the plan purely for tax benefits?
Successful property investors have an investment plan in place.
Like a business plan, they take time to research the market, educate themselves and deeply understand the numbers.
Do you have a goal of building an investment portfolio? As the saying goes, a goal without a plan is just a wish.
2. Don’t follow the crowd
Over the past year, it has felt like one day we are being told property is booming only to be told the next day we should start preparing for doomsday falls of up to 40%.
So who is right?
During the depths of the GFC, Warren Buffett said: “Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.”
The bottom line is following the crowd, or market commentators into the latest property hotspot based on what everyone else is doing is a bad strategy, and one that generally leads to property investors losing money over the longer term.
As Buffett says, insulate yourself from popular opinion. Do your own research, form your own opinion and build from there.
3. Look at alternate strategies
Why can’t you live where you want, and invest where you can afford?
Rentvesting is a strategy that helps you accelerate your property investment goals. It goes against what our parents used to tell us that rent money is dead money.
Let’s look at a simple example.
Say you were renting 3/574 Botany Road Alexandria for $720 each week, or $37,440 each year.
Now say you were thinking about buying the same property, RP Data values it at about $986,497, and let’s also assume with an 80% loan-to-value ratio over a 30-year term at 4.50% P&I, repayments is $1,022 each week, or $53,144 each year.
(If you owned the property you would also need to pay strata costs, insurance and other maintenance — but let’s keep the figures as simple as possible at this point.)
Renting would be $15,704 cheaper each year.
In a rentvesting scenario, you could invest this difference into another property.
Or look at diversification in the stockmarket, ETFs or fractal property investments like BrickX.
4. Understand your numbers
Australia’s richest property investor, billionaire Harry Triguboff (worth $12.77 billion), still takes time to review every sale and expense line of his property business.
The reality is a lot of property investors get into property doing some quick back-of-the-envelope numbers but don’t go much beyond that.
This is why almost 75% of Australian property investors own just one investment property.
They are getting held back because they don’t understand their numbers, and the banks won’t lend them more money because their serviceability is being held back by negatively geared properties.
Before you buy, understand the cashflow of the property.
And more importantly, once you own the property, take a page from Harry’s book and review how the property is performing more regularly than just at tax time.
5. Adapt to the circumstances
Australia’s property market moves in cycles. Sometimes the market is good, sometimes its bad.
No-one knows this more than Harry Triguboff, who has been investing for almost 60 years. He had said: “If times are bad you buy land and by the time you have finished building times are good again.”
The same is true with the lending market. Sometimes it’s easy to get investment loans, sometimes it’s hard.
At the moment the reality is the royal commission is causing the banks to take a more conservative line on lending.
Smart investors are adapting to this by understanding the following three points.
- Live credit scoring is now out. Positive credit reporting is being used by the banks, and they can now see your repayment history from the past two years. A missed repayment 14 months ago could affect your ability to borrow. Get your credit file to know where you stand.
- Reduce your monthly expenditure. Banks are looking at what you spend each month, and will reduce your borrowing capacity based on these figures. Talk with your mortgage broker about your monthly living expenses and consider working on a budget to keep them in check.
- A bank valuation is an opinion. When leveraging equity, three different valuations from three different banks helps smart investors get ahead. It’s not uncommon to see up to a 20% difference between valuations, and a good mortgage broker will help you navigate this.
6. Play the long game
I love this quote from Warren Buffett: “Nobody buys a farm based on whether they think it’s going to rain next year, they buy it because they think it’s a good investment over 10 or 20 years.”
Buffett decides something is worth investing in because it will last, not because it’s doing well right now.
So many property investors are just thinking two or three years into the future or buy at the top of the market when FOMO is at its peak.
This comes back to having an investment plan in place. If you have a goal of building an investment portfolio or creating passive income of $100,000 in 10 years, put together your plan and start working on it today.
Talk with your mortgage broker or financial adviser about your investment plan, understand how different investment properties can affect your borrowing capacity and ultimately hold back your goals of building an investment portfolio.
Did I miss anything?
Now I’d like to hear from you.
Which strategy from today’s post are you going to try first? Or maybe I didn’t mention one of your favourite property investment tips?
Either way, let me know by leaving a comment below.
Disclaimer: this article is general information and should not be taken as investment advice. Different strategies work for different people and you should seek help from a qualified tax professional before considering any investment strategy.