For those of us sitting expectantly on the sidelines, the dark storm of change hanging over property has been averted following the federal election and certainty, easing of credit and confidence have created clear blue sky ahead.
So now is a great time to be starting your first investment property. But it could set you up, or set you back. The harsh reality is that 95 percent of investors fail and over half sell their property within five years, never to return to the market.
The biggest stumbling block is at the starting line, as first-timers rush to real estate websites, search the latest hot spots and hit the pavement on the hunt for that perfect investment property.
It sounds like the right approach. But it isn’t. Successful property investors focus on the right principles, processes and most importantly the right people before anything else.
The first step
Start by asking yourself if you are investing for capital growth or cashflow. If you’re like most first time investors, your focus will be on high value growth property, which requires a ‘wealth by stealth’ growth strategy.
This is where you use as little of your own money as possible to secure as large an asset value as possible as quickly as possible, as affordably as possible. Then just let time, the tenant, the tax office and the magic of compounding interest work their magic.
Maximising safe, affordable growth requires a borderless national versus neighbourhood approach, and the secret to this is scarcity.
The 6 ‘S’s’ in Scarcity
Now it is time to apply the top down 6 ‘S’ scarcity model. This includes:
Synchronising the property clock, then
Selecting the best State,
Street, and finally
Sanctuary (the most relevant ‘s’ word I could get to property!)
Starting with spend, what is the most achievable, affordable and comfortable property purchase price based on your current financial position? This is where a savvy finance broker can help you.
As over 80 percent of property price growth is driven by the location, you find the right spot by ‘synchronising’ with the best state and suburb at your spend.
Make sure you’re in the rising recovery market phase of the 8 to 15 year ‘S’ growth curve cycle or between the hours of 6 and 9 on the national property clock.
When targeting locations with high demand growth drivers, it’s about following the strong and growing job income locations that offer lifestyle, attractive café culture, good school catchments and positive change ahead (through committed infrastructure, rezoning or gentrification), along with limited housing supply.
And when it comes to housing, we’re talking about three to four bedroom family homes on land, not units or apartments.
It means riding on the coat tails of emotion driven owner-occupiers, avoiding areas with a high ratio of renters.
Consider new homes instead of old, as depreciation and tax incentives mean that new properties are much more affordable to hold (eg just 10-25% of the ongoing cost).
It also means focusing on strong, growing population locations with critical mass and diverse employment industries, ideally as close to the CBD and/or water as possible. Avoid remote, small and isolated single industry regional towns.
Ultimately, you need to be in the sweet spot of the bell curve of supply and demand – good homes at price points that people can always afford to rent and always afford to buy.
Now that you’ve got the right principles and processes, you’re finally in a position to put your team to work.
Work with expert, independent property professionals with a track record of success – this is absolutely critical when you are starting out and want to begin on the right foot.
Bushy Martin is founder of KNOW:HOW Property Finance – an award winning finance brokerage and property advisory. He is recognised as one of Australia’s Top 10 Property Specialists. His new book ‘Get Invested’ and podcast of the same name is the prequel to his first book ‘The Freedom Formula’ so that you can live more and work less through clever property solutions.
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