Expert Advice with Kate Forbes 16/09/2016
Real estate investing used to be a rather niche industry, confined to the few Australians who had significant reserves of cash and a genuine interest in the property market.
These days, you could be forgiven for thinking that everyone is a real estate investor.
Interest rates are at all time lows, freeing up many people to borrow against their homes in order to buy more properties and — if all goes well — make a tidy profit down the track.
Mums and dads are getting in on the act, too, by sinking their super in the residential property market, which, as we all know, has shown some significant growth in the past 15 years.
But just because Australians have a love affair with property, and the returns are potentially high, does not necessarily mean they will be good investors.
People lose money in real estate all the time. We rarely hear these stories in the media, but it happens.
To be truly successful in real estate you will need to cultivate a few business habits and stick to them.
Here are some dos and don’ts that I have found to be extremely important throughout my career.
This is important as most real estate mistakes — and they are the costly ones — usually stem from a lack of research rather than a spate of bad luck (although that happens too).
It is very important to make sure that you understand the market you are buying into, so that you are able to make an informed decision on whether you are buying a good investment or not.
Some people have a tendency to cut corners, but there is no such thing as too much research in the world of property investment. This applies not only to the property or apartment you are buying, but the people you are doing business with along the way.
To realise the full potential of a property you need to let it sit and rise in value over the years. Doing so uses the twin powers of leverage and compounding to grow your asset base.
If you are getting into property investment to flip properties every few years, I would call you more of a speculator than an investor. True investors know the value of buying and waiting…. and waiting….
Once you have fully committed to becoming an investor, you need to set yourself some realistic goals. Perhaps you would like to buy three properties within five years? Or maybe two is enough for you (and your budget).
No matter how big or small the ambition, it is important to set yourself a target to work towards. Then write it on a piece of paper and stick it on your fridge or create a vision board. Do whatever will keep you motivated.
There will be times during your property investing career where you feel like it is a bit of an uphill battle to keep your head across everything.
You may become so consumed with due diligence, research and saving money in order to fund the purchase of your next property that you forget to take your foot off the accelerator once in a while.
But everyone needs a break, and just as targets and goals are important so are rewards. Perhaps your latest investment property has been revalued at $100,000 more than you paid for it a year ago?
Grab a bottle of your favourite champagne and celebrate.
Ask yourself why you have decided to become a property investor.
More than likely it was for a combination of reasons, such as financial freedom, the thrill of investment, an interest in the property market.
These are all great reasons, but be careful that in your determination to succeed you do not overestimate your position.
If you don’t have enough equity to buy more than two properties at this point in time, then you need to accept that and not try and over-extend yourself.
Furthermore, it helps to know your risk profile.
Are you someone who is comfortable with a huge portfolio of properties or are you better able to sleep at night with two or three?
There is no shame in being realistic about what you can handle.
Rush a decision
Often in real estate, investors need to think on their feet.
This may be the case when negotiating and talking to agents, for example, or when you are bidding at an auction.
There is a big difference, however, between thinking quickly and rushing a decision.
Always try and buy yourself time to think the big decisions over, such as how much you are willing to pay and whether or not to employ the services of a particular property manager or solicitor.
A decision that you have given considerable thought to is much less likely to be one you will regret.
Buy something because it’s cheap
Unfortunately I’ve met quite a few investors over the years who have come to regret buying that “cheap” property that turned out to be a secondary property – you know in a bad location on a main road, in a regional area with no growth or riddled with structural problems and difficult to rent.
So that property that you thought was a bargain can quickly become a money pit.
There may not be anything wrong with the property either. It could just be that it is located in a regional area or too far from the CBD, which diminishes demand and therefore its value. And this can’t be changed – while structural problems or termite infestations can (at a price!)
You should buy a property because it ticks the boxes for solid investment: great location, great floor plan, close to amenities and good transport.
So next time you are tempted to buy a property because it is under the median price for similar properties, I want you to say to yourself, “it’s probably cheap for a reason.”
Sometimes, despite our due diligence, we realise we have made the wrong decision in hiring a professional or engaging a particular property manager.
They may not have not lived up to a professional standard you set and you know you need to cut them lose and find someone else to take their place.
Do not put this decision off for fear of causing offence or ruffling feathers. You need the best team on your side to be successful as an investor, and this means ensuring you have the best property managers, buyers’ agents, brokers and solicitors on your side.
Making excuses for tardiness or lack of knowledge or laziness — whatever the problem may be — will cost you in the long run.
Misjudge your cash flow
Finally, a word of warning about expenses.
Most of us realise it is an expensive process to buy and sell properties, what with all those agents, stamp duty and brokers’ fees, but few investors take the time to consider their weekly cash flow.
As you will be buying and renting out properties you will need to factor in additional money for maintenance, property managers’ fees and all the little incidentals.
Why not start a spreadsheet for all of your properties detailing expenses (up-front as well as ongoing), your budget to cover these, as well as incoming rent?
Then find a great accountant- a great tax specialist is vital for all investors.
Well there you have it some do’s and don’ts to help make you a better investor.
Kate Forbes is a Property Strategist at Metropole Property Strategists in Melbourne. 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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