Expert Advice with Kate Forbes 16/09/2017
Many first-time investors stay just that way – one-time-only buyers, who never progress beyond having that one solo property in their portfolio.
This happens for several reasons.
An underperforming property, lack of funds to purchase again, and – worst of all – apathy or losing sight of your ‘big picture’ goals are some of the most common ones I come across.
If any of these sound familiar, you’re not alone; 73% of all Australian property investors stop at just one property.
But you want to achieve more than the average investor, right?
So, let’s look at four ways to make sure you don’t find yourself stuck on the first rung of the property ladder.
1. Get it right the first time
It’s important to get your first property investment right for several reasons.
Firstly, if you’ve bought the right property in the right area you’ll likely see enough capital growth in couple of years to fund the deposit for Property #2.
On the other hand, if you don’t achieve strong capital growth it will be very hard to save the deposit for that second investment.
Buying the wrong property or chasing cash flow over capital growth is why so many first-time investors never move past having one property.
Secondly, owning a property that is performing well is the best motivator for moving on to the next purchase.
So, take your time and do your research before buying Property #1.
Look into all the key factors of successful properties, including location, historical growth for the area, distance to major cities or infrastructure, supply and demand and rental yields.ß
2. Become an expert, even if you’ve never bought property before
While you’ll always learn ‘on the job’ in investing, the most important learning you’ll do comes before that first purchase.
Become a real estate guru by reading, researching, attending seminars and finding other property investors to be your mentors.
And remember, you don’t have to do it on your own. Get an independent team of property advisors on your side.
You’ll need to understand how the market works, what drives prices, and the factors that make or break properties before you even begin looking at houses and units for potential investment.
3. Have a plan that spans your lifetime
You’ll hear often that real estate investment is a long-term strategy designed to help you reach long-term goals.
This is true – and you’ll need to clearly evaluate your objectives and have a detailed plan outlining exactly how you’re going to go about building your portfolio to reach them.
Usually, people structure their goals around their preferred retirement age and how much money they will need as a passive income stream to live comfortably.
Using that as your target, you configure a portfolio with the assets that will create your desired income.
This means that when you’re buying your first property, you’re already thinking ahead several properties and asking yourself if this purchase will help you reach your next target.
You must be clear about how each property needs to function in your portfolio, such as the rental income it needs to make, or how much capital it needs to gain in a certain timeframe.
This gives you a solid checklist to tick off as you search for your next investment.
4. Make a financial plan
Your end goal is the amount of money you want to make from investing; your starting point is the amount of money you’re making now.
Your financial standing dictates your immediate borrowing power, which affects the first property you will buy.
If your financial situation impedes your loan approval, then it’s time to make some changes.
Let’s be honest – too many people live beyond their means, and sometimes finding the financial position that allows you to buy your first property means selling some things, downsizing, or changing the way you think about money (and that includes the way you spend money, too).
A financial planner can help you find ways to manage your budget and finances, and reduce or eliminate personal debt like credit cards, which will make you more appealing and less of a risk to lenders.
Moreover, a written financial plan helps you stick to your goals.
Motivation is a necessary force for propelling your investment plan forward.
What if you’re stuck at Property #1?
An underperforming property undoubtedly stalls your forward momentum.
In this situation, you have several options from waiting to see if the market moves in your favour to cutting your losses and selling your property.
For some people, the idea of selling up and starting again may sound like a backwards move.
But if it’s what allows you to purchase another property that hits the targets you’ve set for your financial future, then it’s really a step forward.
This will allow you to start again with your next property – ideally, a little wiser the second time around.
Kate Forbes is a National Director at Metropole Property Strategists. She has 15 years of investment experience in financial markets in two continents, is qualified in multiple disciplines and is also a chartered financial analyst (CFA).
She is a regular commentator for Michael Yardney’s Property Update
Read more Expert Advice from Kate here!
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
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