Investing in property can be daunting endeavour, especially if you’re heavily reliant on a salary. But with the right mindset and strategy, property investments can pave the way to financially secure future.
The COVID-19 pandemic has exposed just how financially vulnerable many Australian workers are – especially those who rely on a nine-to-five job as their main source of income.
For Lloyd Edge, director and founder of Aus Property Professionals and author of a new book titled Positively Geared, the pandemic was also a wake-up call for Australians to protect their finances from unexpected economic disruptions – and he believes investing in property is a great start.
Edge’s investment journey began on a teacher’s salary when he lived in a heavily mortgaged and negatively geared one-bedroom apartment. After a decade in the property investment scene, he has since built a portfolio of 16 properties in New South Wales, Queensland, and Victoria for a total worth $12m at 45% LVR.
Edge says that anybody with the right mindset and strategy can achieve a financially stable future. He shares six tips on how to do this through sound property investments.
First, know your WHY
Edge says that for your property investments to flourish, you need to have a clear vision of where you are heading and a sound plan to make that vision come to fruition.
“You need to set your big-picture lifestyle goals for wealth creation,” he says. “Ask yourself these questions: Where do you want to be in 10 to 15 years? What are your goals? Is it financial freedom, leaving a legacy, or providing private school education for your children?”
Edge says that it saddens him to see people spend many years grinding away in their nine-to-five jobs just to afford a home in a beautiful location, when in fact they can use that property to further their wealth.
“You will need to build up from that by purchasing other properties that have a clear purpose and their own strategy to achieve that long-term goal and acquire financial freedom at the same time,” he says.
Determine your strategy
Edge says that successful investors know where, when, and what to buy.
“What is not going to work for you is merely buying a property in one location and waiting for growth,” he says. “You need to create equity in properties and create cashflow to achieve your goals, rather than sinking all of your investment money into a single property that offers no substantial financial reward for years to come.”
“You need to understand how each property will get you into the next property – this means the locations, prices and property structures will greatly differ for each investment,” Edge says.
Edge also stresses the importance of a good location when buying a property. He advised investors to look for areas that have “all the fundamentals of good growth.”
“Find properties near universities, hospitals, and school catchment zones or areas with a higher than average median income for a city and with an average of two incomes within the household,” he says.
“This provides much better stability, as there is less chance of renters not being able to pay if there are job losses. Many people don’t look at that avenue when buying properties.”
Once you’ve secured your property, control the market yourself
Edge says that the “buy-and-hold” approach must be avoided at all cost.
“Instead, do something with the property that will increase its overall value and rental income, so you can speed up the process of growth in any market,” he says. “Ensure that you’re buying something that you can subdivide and/or update, so you can add value.”
“Because regardless of what the market does, you’ve then created your own capital growth, and you can borrow against that increased equity for your next investment.”
Edge calls this investment strategy the “property trifecta.” The self-developed strategy is built on three schemes – organic capital growth, instant equity, and positive cashflow – and designed to provide property investors a road map to success.
Positive gearing and cashflow
Another thing to avoid is negative gearing, according to Edge.
“If you want to build a sustainable portfolio, having a negatively geared portfolio and claiming the difference on tax is not a sound strategy, despite its popularity in Australia,” he says.
“Negative gearing will keep you in a job forever. Whereas, passive income from your portfolio will allow you the choices to step away from full time work if you choose, as well as being able to pay for all the other luxuries in life.”
Edge said that investors should also be able to “manufacture equity in property to achieve uplift in the short term.”
He lists “buying below market value, buying from motivated vendors, looking for properties that need some TLC, adding value by way of subdivision or development, and buying multiple income properties” as some strategies that have led to his success.
Edge believes that by following these tips, investors will be able to create a sustainable investment strategy that will lead to future financial freedom, no matter what their current financial position is.
“In summary, I believe Australians need to focus on three ‘fazes’: ‘growth’, ‘hold,’ ‘exit’,” he says. “This means knowing what properties to buy and what strategy to use, how long to hold on to them, and then when to sell them, and at what point, so you can achieve your ultimate goal.”