Tuesday, 7th January 2020
By Victor Kumar
The start of a new decade is upon us, which means it’s the perfect time to review your property investment strategy.
As I always say, property investment is a long-term wealth creation strategy, which requires planning, patience and persistence.
There are a number of ways that you can make the most of the next decade to work towards your financial hopes and dreams and here are six of them.
- It’s a game of finance
Novice investors falsely believe that successful investment is solely about property selection, when it’s not.
Buying the right properties in the right suburbs is important, of course, but at the end of the day, property investment is fundamentally a game of finance.
This is especially the case in challenging financial times and for investors with multiple properties, because without access to finance they can’t grow their portfolios.
Your focus needs to be on your finance strategy over the medium- to long-term rather than on which lender is offering the lowest interest rates.
Don’t get me wrong, interest rates are important, but you must always be mindful of being able to implement the strategy for each property using finance as the vehicle.
For example, if your plan for a property is to construct a secondary dwelling, will you qualify for an extra loan with your current lender? Will they even support a construction loan? OR whilst supporting construction, will they reduce the loan to value ratio because it now has more than one dwelling?
If not, you will need to consider lenders that will.
Also, in 2020, many borrowers will be faced with principal and interest repayments on their mortgages, as their current loans come off interest only, so do you have the cash flow for this?
- Choose your experts wisely
One of the biggest changes over the past decade has been the rise of social media influencers and so-called “experts”.
These people present an image to the world of nothing but success when the reality is usually quite different.
It’s vital that in the next decade you don’t let someone else’s supposed wins become your losses.
That’s because social media property “stars” only ever talk about their successful property investments and not the times that they got it wrong and lost money, which everyone has done – including me in the beginning.
Your strategy must be in-line with your own financial fingerprint – not from the brag rights from someone boasting loudly online, when they may not have been in the market as an investor for long themselves.
- Put financial safety first
Investors must be able to pivot from their portfolio plans if things don’t pan out in 2020.
This could involve investing in different assets or different locations.
However, you must have the financial means to do so, which is why it’s vital that you don’t bite off more than you can chew.
You must always take a balanced approach when it comes to the amount of capital that you have available.
Never use all of your capital, because you must always have a financial buffer in place.
This extends to ensuring you can always afford periods of negative cash flow after taking into account maintenance, repairs and periods of vacancy.
Finally, you should never buy in areas where there is a very high vacancy or illiquidity factor.
That’s because you must be able to offload the property and walk away with your money if needed, as circumstances, and indeed, goals, do change.
- Don’t rush
Smart property investors take their time growing their portfolios because there are always markets in the right phase of the cycle to buy in.
They also recognise that they never want to be in the position where they are unable to borrow because they have over-extended themselves financially.
So, they adopt a three-pronged approach that involves portfolio expansion, consolidation, and expansion once more.
The consolidation phase allows for the dust to settle on the property, including any necessary maintenance and repairs, as well as on their borrowing capacity and their budget.
- Design your decade
Investors should develop a plan for next year but also for the next decade.
What is your end goal for 2020, and what would you like to achieve by 2030?
These plans must involve a number of strategies, including finance, tax planning, asset protection and property acquisition.
Only after you have determined these factors should you execute, because it will then guide you to the right areas at the right times.
Over the next decade, many investors will also see value in major regional areas as well as metropolitan locations, because it will create diversification in their portfolios, as well as make the most of future decentralisation plans across the country.
- Create your own journey
Your property investment strategy must be aligned with your own wealth creation goals and not anyone else’s, and it must take into consideration your own personal financial fingerprint.
Some investors have a plan to have large portfolios of five or 10 properties because they can afford to do so.
They also have future plans for small residential development and commercial property investments.
While the realistic goal for others might be three or four properties (or even one!) because of affordability and cash flow considerations.
Regardless of your personal financial situation, property investment is a proven long-term wealth creation strategy that can benefit every Australian – as long as they create their own bespoke property journey.