Yes, Propery Investement is right for me! What now?
by Adam Grocke (6 Min read |Beginners)
You are one of many people in Australia who always had a love for property. I think the fact that you can see it, feel it and change it, makes it a desirable investment for many people. Let’s explore the best proven strategies I've either used personally or offered to my clients. Having helped almost 1000 clients to purchase, renovate, develop or invest in property, I've witnessed the majority of pitfalls and identified the key contributing factors to success.
To start, I need to explain my 3 main criteria for the chosen successful strategies.
It needs to be achievable for you and take into account your average income, savings, living expenses and investment time frames.
2. Moderate Relationship between Risk & Reward
The relationship between Risk & Reward needs to be acceptable to you as an investor. The general rule of thumb is that higher risk achieves higher rewards; this is true; however, higher risk also greatly increases the likelihood of you losing money.
3. Minimising risk
All investment carries economic risks. One example is, if there is a property crash and almost all investment strategies will lose money and vice versa. The key is to focus on what you can control as well as putting a “buffer” or “plan of attack” in place, for the case things do turn bad. We'll elaborate on each strategy’s buffer later on, as they differ between strategies.
Ok, let's get started with key points that separate a good property investor from a bad one.
1) Listen to your BRAIN not your heart !
A good property investor makes decisions assessing objective data not a gut feel. You need to break the tie between emotion and decision making as emotion will always bias your personal preferences which may not result in the best outcome. A good property investor will identify when emotion is present and will seek advice from a third party to get an unbiased opinion. Good property investors also don't invest for any other reason but to make money. It's not an ego building exercise to build a 100 property portfolio as this may not be the best way to make money. Too many people are focused on the number of properties they own instead of their nett worth, how much money each property is making and is each property really performing.
2) Take Time to prepare & research
Some of the decisions you will make will be the biggest financial decisions of your life. No pressure, right?.. But it is important to bring up the fact that it is a major decision. It never ceases to amaze me how unprepared people are. People put more preparation into their weekly grocery shopping lists. Don’t make this mistake and complete a feasibility check for each property, do your research, get advice and get a second opinion. Plan for the best outcome and the worst.
3). Patience is a virtue
Nothing happens quickly so be prepared to wait for results. If you are impatient you will make wrong decisions that can cost you money in the long term. There will always be another opportunity around the corner.
As mentioned in our previous blog, “The Hidden Truth about Successful Property Investment in Adelaide?”, avoid BBQ advice or at least do not put too much meaning to it. An example of exaggeration can be accidental, EG. I've heard someone say they made $200,000 from a property in 5 years.
If you break it down this just isn’t true as they didn’t include purchase costs, holding costs, maintenance expenses, sale costs (if they were to sell) and Capital Gains tax (CGT). Just because they purchased for $200,000 and now it’s worth $400,000 doesn’t mean they have made $200,000 profit. In South Australia the figures would have looked like this: they would have paid approx. 5% purchase costs (stamp duty, fees etc), net holding costs assume $4,000 per year, 2.2% agent sales fees and approx. $10,000 marketing and then CGT of the profit.
After all these expenses they may be left with approx. $72,000 in their pocket once sold.
So how can you make money from property?
There are 3 main Strategies to make money from property outlined below:
- Buy & Hold is the traditional way & warmly recommended for Beginners
- Renovate & Flip is for talented Experts or lucky people who know good reliable handymen / carpenters
- Property development is more of a business model and can be very rewarding
Choose one strategy that will work best for you, make a plan and stick to it. If not, save yourself the stress and hassle and give your money to charity instead of losing it.
Now hopefully you have enough information to avoid the mistakes I see day to day, and most importantly, help you make money from property. If you want to have a chat, feel free to contact me directly: Adam@jgg.com.au
Published November 1st 2017