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Avoid property investment failure with this 8-point plan

Building a resilient property portfolio takes planning, so why not take the word of a property guru?

When property investors fail, I find that most of these failures come down to not having a strategy or having a lopsided strategy that’s tied too heavily to one aspect of a property – oftentimes, the location.

You need more than this. By incorporating a blend of various concepts into your approach, you create a resilient portfolio that can effectively respond to market dynamics.

Every time you’re preparing to buy, you should sit down and develop your eight-point plan.

The eight points aren’t in a strict order, and some points are more relevant to investing than home buying, so adjust your approach depending on what you’re aiming for.

Property guru John Pidgeon inset over an overhead shot of houses in Australia.
Property investing can be tricky to nail, but a path to financial stability if you do. (Source: Supplied/Getty)

The points at a high level are:

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  1. Strategy: Specific to investors, strategy relates to whether you’re aiming to benefit from capital growth over time, a certain level of cash flow, tax benefits, or a combination of all of these.

  2. Yield: Another point specific to investors, yield is focused on the kind of return you’re expecting to see with a property. It’s an annual percentage figure, assessing potential income against what you pay (and will continue to pay) for the asset.

  3. Loan-to-value ratio (LVR): LVR provides a comparative assessment of the property’s price in relation to the amount you would need to borrow to purchase it. Generally, you want your LVR to be as low as you can get it.

  4. Price: Price touches on more than just the price tag of a property you’re considering. It’s about your lending capabilities, risk tolerance, deposit, potential expenses and emergency cash buffers.

  5. Buying entity: Selecting the buying entity you will use to purchase property (e.g., as an individual, through a trust structure or self-managed super fund) comes down to knowing your intentions for each property. Some buying entity options will make more sense than others, depending on what you’re trying to do.

  6. Property class: The class of property you select will depend on your goals – whether you’re looking for a higher performing ‘blue-chip’ property, a ‘middle suburbia’ buy and hold, or an absolute fixer-upper. They all require varying levels of time and money.

  7. Type of property: The type of property you select, whether it’s a house, apartment or beyond, will come with its own unique costs affecting your yield (as an investor) or your lifestyle (as a home buyer). While none of these eight points should be heralded as the most important, the wrong type of property can set an investor back eight to ten years instead of propelling them forward.

  8. Location: Location isn’t just about shooting straight for the ‘best’ suburbs; it’s about finding the town, suburb or street that provides the right kind of lifestyle and services you or your tenants want to enjoy. It includes population size; overall demographics; infrastructure, both existing and planned; services and amenities; and much more.

How to identify unique investment opportunitiess

It’s common for investors to limit themselves by solely focusing on populous areas, and while population is an important factor in your research, it shouldn’t be the sole determinant.

Having grown up in a rural area, I appreciate the potential that regional and rural locations can offer, which may come as a surprise to many investors. These areas often present unique investment opportunities that are worth exploring.

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Likewise, investing in property the same way your brother, sister, cousin, parents or friends have done is not the only way to go. Your goals and strategy are likely to be quite different from theirs, so don’t copy and paste their approach in your own life.

Diversify your property investments

Experienced investors understand that diversifying your investments helps to mitigate risks. Just like in any investment strategy, it’s important not to put all your eggs in one basket, or in this case, one property market. This ensures that if one of your investments isn’t performing as expected, you have the protection of other investments that (hopefully!) perform better.

This balance allows you to allocate your time and money wisely across different investment opportunities.

To enhance the resilience of your portfolio through diversification, be dynamic in your approach. Consider all locations, property types and property classes – any variables that could be altered to lead you to a better-performing investment.

Consider market conditions and your investing goals afresh each time you invest. Investing on autopilot for every purchase without adapting lacks the necessary flexibility and responsiveness for intelligent investing.

Edited extract from Sort your property out & build your future (Wiley $32.95), available at all leading retailers.