5 golden rules for property investment success

·7-min read
How to build a property investment portfolio that will actually generate wealth. Source: Getty
How to build a property investment portfolio that will actually generate wealth. Source: Getty

Just because you’ve taken the leap from homeowner to property investor, doesn’t mean your financial fortune is assured.

In fact, despite our booming property markets, it doesn’t even mean that you will start making a profit in the short term, or that you are on your way to owning a sizeable portfolio.

The reality is around 20 per cent of those who get involved in property investment sell up within the first year or so and close to half sell their property within five years.

Of those investors who stay in property, around 90 per cent never get past their second property.

So how do you ensure that you avoid all the mistakes that those before you have made, and become one of the few property investors who goes the distance and grows a portfolio that generates real wealth?

There is no short road to success, but the property road is well worth the scenery and potholes, if you stick around long enough to get to the good stuff.

You just have to be a smart about it.

Here’s your new investing acronym to live by:

S: think Strategically

M: Manage your risks

A: invest Against the grain

R: Review regularly and

T: work with a Team.

Here, I've broken down what each of these means.

1. A smart investor thinks strategically

Fail to plan and you plan to fail.

Savvy investors take this mantra seriously.

They start by working with an independent property strategist to build a strategic property plan.

In other words they plan to become the person they plan to become by bringing their future into the present and doing something about it.

This is because they recognise that property investment is a process and things need to be done in the right order.

Having a plan gives them clarity and direction.

They know exactly what they want to achieve and make sure their investment decisions work towards that goal.

Instead of being driven by their emotions, a lucrative offer in their inbox or chasing the next “hotspot”, smart investors remain focused by sticking to a strategy with a long term proven track record.

For a sophisticated investor to bite, each property they buy has to fulfill the criteria they’ve set themselves through their chosen strategy and it must get them one step closer to their end goal.

They have a strategy for choosing the right properties that relies on location but is framed by patience and timing.

This may take some of the excitement out of their investing – but I’ve often suggested not to look for excitement through investing – it should be boring so the rest of your life can be exciting.

A smart investor knows that knowledge is power, and they work hard to educate themselves and stay on top of their game.

They know their options for making a profit from real estate and can determine which properties will help them achieve their particular goals.

2. A smart investor manages their risks

A smart investor knows that sound finance strategy is just as important as sound property strategy.

This includes making sure they don’t over-leverage as well as building in sufficient financial buffers in their lines of credit or offset accounts to see them through the ups and downs of property investing.

They build in a cushion to cover negative gearing costs as well as the flat stages of the property cycle.

They also have an exit strategy in place for poor performing investments.

Smart investors not only manage the financial risks that come with property investment, but work at minimizing their risks.

They seek good advice for the best ownership structures for asset protection and to legally minimise their tax.

They become financially fluent and understand the ins and outs of the taxation and the financial advantages they can enjoy as an investor and ensure their investments are set up in the most efficient way.

A smart investor knows it really isn’t about how many properties you own in your portfolio, as tempting as it may be to build a big portfolio.

They understand that, at the end of the day, it’s the size of their asset base and how hard their money works for them that is more important in the long run.

3. A smart investor invests against the grain

A smart investor understand that the property market moves in cycles and appreciates the power of counter cyclical investing, so they don’t necessarily follow the crowd.

They don’t pay attention to the marketing hype of overnight get-rich-quick property schemes or get caught up in the next hot spot to buy – even if everyone else seems to be flocking in that direction.

Instead, the smart investor is content sticking to their tried and true strategy knowing that the crowd is usually late to the party.

They would rather study the macro economic fundamentals to understand the cycle, stay ahead of it and wait it out if need be.

While most people diversify which leads to “averageness”, smart investors realise that it’s okay to stick to a niche in their investing.

They know you’ll never become an expert by trying a hundred different things once and realize you become an expert by doing the same thing a hundred times over until you can get reproducible results.

4. A smart investor reviews their portfolio regularly

Smart investors never rest on their laurels.

They regularly review their portfolio and analyses its performance.

They know there’s more to successful property investing than a good property purchase and the ability to hold on for dear life; in reality it’s fluid and needs updating regularly.

Each property in a savvy investor’s portfolio undergoes review on an annual basis to determine:

  • How the property has performed over the past few years in terms of capital growth and is it performing as expected.

  • Whether this property is likely to outperform the averages over the next decade.

  • If there is anything they could or should do to improve this property and get a better return on investment.

  • What is happening in the local market of that property including any changes in the demographics of the suburb.

  • Whether it is worth riding out the slump or selling and investing elsewhere.

In other words, a smart investor doesn’t get complacent.

They keep learning by listening to podcasts, reading blogs and books and attending webinars to improve their skills.

5. A smart investor surrounds themselves with a team

They know that they are only as good as their team; in fact if they’re the smartest person in their team they’re in trouble.

They realise they don’t have all the answers and instead surround themselves with successful, proven property investors.

They don’t try to wear all the hats in their investing business and employ a team of independent professionals to help them including a property strategist, finance broker and accountant at the very least.

At the same time, smart property investors are cautious

They have the experience to know that while many people seem to have well meaning advice that they are itching to share, they only listen to those with the results to back up opinions.

Successful investors can also red flag a salesperson in a sea of supposed advisors.

They know that for someone to make the cut and be on their team they have to be independent and represent them (the buyer), not the seller or developer.

As a result, smart investors are prepared to pay for advice.

They don’t cut corners to work with someone who’s cheap or free for the sake of it.

They are building their business under the guidance of their advisors and are ruthless in ensuring they have the best people in the business on their side.

Now that you know what it takes, become the smart investor that you always wanted to be.

Go the extra distance and come up with your plan for success today.

Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy.

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