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15 property investment tips from professional real estate investors

Property investing tips from the experts. Source: Getty Images
Property investing tips from the experts. Source: Getty Images

Want some top property investment tips?

Then why not ask successful investors their advice?

That’s exactly what I did with these seven successful property professionals and there are some common themes that run through their tips.

Here’s what they had to say:

Brett Warren, director Metropole Properties Brisbane

1. Location does 80 per cent of the heavy lifting of your property portfolio

Speculators tend to look for the next hotspot for an initial quick hit whereas other investors look for cash flow positive properties to improve their circumstances.

Both of these are short term factors and will not get you to where you want to be financially over the longer term.

On the other hand, successful investors look for locations that have a proven track record of strong capital growth which will outperform over the longer term because of their demographics.

These tends to be areas that are gentrifying or where the locals have higher wages and therefore higher disposable incomes and this type of suburb can deliver double the capital growth of the general market.

2. Smart property investors choose capital growth over cash flow

The aim of all investors should be to build a substantial asset base that will one day give them more choices in life and hopefully financial freedom

While cash flow is important to help serviceability, especially in this stage of the credit cycle, you can’t save your way to wealth.

“While cash flow is important to help serviceability, especially in this stage of the credit cycle, you can’t save your way to wealth.”

It’s just too difficult to build a substantial asset base from after tax cash flow.

On the other hand tax free capital growth will provide you with the deposit for your next property and the increasing rents from your high growth property will help pay for your mortgage.

Most of your assets when you retire will be your tax free capital growth – the increase in value of your home and your investment properties – not money you have saved or rent that you’ve collected or superannuation you’ve put away.

Ahmad Imam, director Metropole Property Strategists Sydney

1. Take emotion out of your investment decisions

When purchasing a home where you’ll raise your family a large part of your purchasing decision will come from emotion and this is understandable.

However in property investment your purchasing decision should be based on strategy, statistics and logic.

Your due diligence should include analytical research to ensure that you are selecting the right location and the right investment grade asset within that location.

This is not easy and requires perspective that only comes from years of experience. Ask yourself the following questions:

  1. Is it the highest and best use of my funds?

  2. Is the location a stable market with the right affluent demographics of buyers?

  3. Will this location property provide wealth building rates of growth?

  4. Does the property have owner occupier appeal to ensure I am targeting the right demographic?

  5. Can I purchase the property at or below its intrinsic value?

  6. Does the property have a “twist” that will make it unique compared to other properties in the area?

  7. Does the property have potential for value added via a renovation or development?

2. Avoid speculative investing

While it can be very tempting to buy a property in a location that is expected to be ‘the next best thing’, it is also incredibly risky.

‘Hotspotting’ is common in this industry because it appeals to those who are chasing quick returns however in most cases this year’s ‘hotspots’ tend to be next year’s ‘not spots’.

“‘Hotspotting’ is common in this industry because it appeals to those who are chasing quick returns however in most cases this year’s ‘hotspots’ tend to be next year’s ‘not spots’.”

These also have the potential to be very costly mistakes.

It is important to only buy in locations that have shown long term historical evidence of growth and also the correct demographics and socio-economics to ensure future long term growth.

If the location has not been proven, then the potential for growth is simply a speculation – which is another word for gambling.

Property investment is not a get rich quick scheme and those who have been successful in property investment adhere to a proven strategy and work with three core fundamentals:

  1. Leverage – using other people’s money (the banks) to help build an asset base

  2. Compounding – focusing on high growth assets that grow faster the longer you leave them

  3. Time – the more time you have the more compounding can occur

Kate Forbes, national director Metropole Property Strategists

1. Buy the best property you can afford and hold it for the long term

I come from an equities trading background – a background where timing is crucial and where you can make money off even bad stocks by buying and selling them at the right time.

Applying the same trading strategy I used in stocks to property would be madness though, as property works best as a log term buy, add value and hold strategy.

The longer you hold onto it, the more it grows and the more time there is for compounding to do its magic.

So if you accept that selling isn’t part of your strategy, it then becomes imperative to pick the best asset you can afford, add it to your portfolio at or below intrinsic value and hold onto it for as long as you can.

2. You make your money when you buy, but it’s better to buy good property at a bad price than to buy a bad property at a bargain

It’s often said that you make your money when you buy, but this is often misunderstood as meaning that you need to buy at a bargain price.

Fact is: you make your money when you buy by purchasing the right asset – an “investment grade” property, not by nabbing a secondary property at a cheap price.

Remember, price is what you pay, value is what you get.

Yet we see many people obsessed with buying at a discount as they want to lock in an initial “perceived” gain but in reality they are often lumbered with a property that will underperform in the long term.

I would much rather pay the right price for an investment grade property that will consistently outperform the averages, than get an underperformer at a large discount.

The longer you hold them in your portfolio, the larger the differences will be.

Remember… a cheap property today will most likely also be a cheap property in 5 years’ time.

“A cheap property today will most likely also be a cheap property in 5 years’ time.”

Ken Raiss, director Metropole Wealth Advisory

1. Buy the type of property that will be in continual strong demand in the future

Successful property investors own “investment grade properties” – they type that will be in continual strong demand by owner occupiers in the future.

Not that they plan to sell their properties, but they want owner occupiers to be buying similar properties in the neighbourhood pushing up local values.

Remember home buyers buy with their hearts, while investors buy with their calculators.

Of course you also want the type of property that will be popular with tenants so study the local demographics, do your research and be very strict on your buying criteria and be patient

2. Treat your property investment like a business

As an accountant I would be remiss if I didn’t suggest to use the correct ownership structure to protect your assets and to protect yourself with life and income protection insurance.

And while you lock in your profit by buying a good property, you must regularly review its performance to ensure it’s living up to your expectations.

You should also regularly review your finance structuring to ensure maximum cash flow

Along the way, get a good property manager to look after your property and optimise your rents, and keep your property in top condition by periodically freshening it up when needed.

Bryce Yardney – department head Metropole Projects

1. Always leave yourself a financial buffer

Property investment is a game of finance with some houses in the middle, so have a robust finance strategy.

This doesn’t necessarily mean go for the lowest interest rates.

And never overcommit financially – a small change in the market, a prolonged vacancy or rising interest rates could embarrass you financially or even worse, force you to sell.

Smart investors buy themselves time as well as properties by having a financial buffer in an offset account or line of credit. This allows them to cope with the ups and down of their investment journey and life.

“Never overcommit financially – a small change in the market, a prolonged vacancy or rising interest rates could embarrass you financially or even worse, force you to sell.”

2. Always leave yourself a contingency

Whenever you are undertaking any kind of work, whether it be a small renovation or a larger development, always leave yourself a contingency. Unknown and unexpected costs will always occur so make sure to allow for them when you’re crunching your numbers.

The size of the contingency should depend on the size and complexity of the work you are doing as well as your level of expertise and experience.

Rita Thomas, senior Property Strategist Metropole

1. Attaining wealth doesn’t just happen – it’s the result of a well executed plan

To be successful in property investment you need to plan, prioritise and work with a team of experts so that you’re making informed decisions based on numbers and facts in order to achieve long term goals.

And remember…if you’re the smartest person in your team you’re in trouble

2. Don’t get caught up in the hype and the fear of missing out

Fear and greed drive our markets and are one of the causes of the property cycles we experience.

Not long ago F.O.M.O. – the fear of missing out drove the Sydney and Melbourne property markets to dizzying heights. Today many would be investors are sitting on the sidelines worrying about the fear of buying to soon.

When emotion drives your investment decisions your results tend to suffer.

Don’t try and time the market – instead have a strategic long term plan and stick to it, not letting the short term ups and downs sway you.

Greg Hankinson, director Metropole Constructions

1. Time in the market is far more important than timing the market

The best time to buy a property was twenty years ago. The second best time is today, but buy one where you can “manufacture” addition value through effective renovation or development.

2. Be unemotional

There’s no room for emotions when investing in property. It’s purely commercial and all about the numbers. Leave the emotional stuff for your own home.

3. Leave it to the professionals

We’re all busy people can’t be an expert at everything, but you can buy that experience. Get a good team around you to help get you to where you want to be.

Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.

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