Whether you are a property investor looking to start your portfolio or a seasoned owner trying to ride out market turmoil, it is essential to keep an eye on the bigger picture.
That is to say, what are your goals as an investor? Immediate cash flow, instant profit through renovating or buying to hold and build wealth for retirement, are all common reasons to invest. When times are tough, it will not hurt to reassess your objectives: would you prefer to maximise your tax deductions through negative gearing and interest-only loans, focus on repaying non-deductible owner-occupied debt, or cut some of your debts on your investment to build equity?
If you are holding an investment property, consider the gains that you have made over the time of your investment, the tax benefits you have received, and the potential for a return to capital growth.
Meanwhile, there are a number of things to remember to ensure you stay the course as you work towards your property goals, according to CoreLogic.
1. Do not panic
Property is often a long-term investment, and price drops do not mean that it is all doom and gloom in the market. Investors need perseverance; the market may slow right now, but it will eventually rebound – and it’s a cycle that is likely to happen again.
The trick is to decide what you will do during the downturn. Either you increase your exposure to take advantage of opportunities or reduce your exposure to minimise the potential effect of rate rises or further tightening of bank policy.
2. Do not get in over your head
It’s important not to overextend yourself and decide carefully about how much you can afford to spend, especially when waiting for big returns – because they may take longer than expected.
3. Do not compromise on quality
There are numerous large-scale, high-end developments in the apartment market. Most of the properties in the inventory will feature high-quality fittings, appliances, joinery, double-glazed windows. “The quality has to be there, or you won’t get the return. If you can’t produce the quality yourself, you need to get someone who can,” Bruce Adamson, a plumber who has purchased and sold five investment properties all within 8km of the Brisbane CBD, tells CoreLogic.
4. Do not overcapitalise on your property
It is important not to overspend when renovating, especially when the market is cooling. Learn to prioritise and spend money on a good appliance, or a paint job to freshen up the place. Think twice if you are planning to build an outside extension or swimming pool.
5. Do not over-stylise your property
While you have your personal choices in terms of design, you need to keep in mind that your property should be appealing to the widest possible range of people. Some owners use bold paint colours, Bohemian design elements, or unusual materials, but the approach might be ineffective with a buyer having a different taste. It is recommended to take a more conservative approach that will get tenants and buyers through the door.
6. Do not opt for interest-only loans by default
Before choosing interest-only loans, evaluate first if it will work for you. “Just having interest-only because it’s an investment doesn’t necessarily mean that’s the best strategy,” Pink Finance Founder & Director Nicole Cannon tells CoreLogic.
7. Do not borrow up to your maximum borrowing capacity
A lot of investors purchase properties using the equity in their home, and there is a temptation to push the bank to as high a loan-value ratio (LVR). It is more ideal to borrow less for an investment property that you can comfortably afford. This will allow you to absorb possible market corrections.
8. Do not rely on rent value promises or guarantees
Make sure that you assess carefully the rent packages offered to you. “A lot of investors keep the figures too tight. Agents always want to put the property in the best light. I always get independent rental assessments from rental agencies that aren’t sales agencies as well; if the client understands the expectations that have been set, they can work the numbers off of that," an independent buyers’ agent Wendy Russell tells CoreLogic.
9. Protect your investment
Swings and roundabouts come with the territory. The loan process takes longer now than in recent years, but conservative lending policies are designed to protect buyers and the market from catastrophe.
10. Do not get stuck on a particular property or location
You should learn to be open to many kinds of properties, strategies and locations. There is nothing wrong in choosing a more attractive area or property over what you initially preferred. Savvy investors understand their target markets and are willing to wait for the right purchase.
“There are so many people doing the same thing that it’s hard to get a property at a reasonable price that you’re going to get a good return out of. It’s all part of really knowing the market and knowing what return you’re going to get, versus the effort and time you’re going to put into it. This is all part of understanding how much you’re going to make out of it,” Adamson tells CoreLogic.