It would be fair to say that most investors know they dont have all the answers when they start the journey to buy an investment property. Many appreciate it is highly recommended to seek professional advice from finance, legal, accounting and property advisors before you make large, impactful decisions. Most people are aware that we don’t know what we don’t know however we trust that our advisors will assist us. And they can of course do this. While most advisors answer questions about things we know we don’t know, how do we ensure we get answers to the things we don’t know we don’t know? This is the deeper layer, and unfortunately many never look here.This is where future problems and traumas may have been averted, had we been aware enough to probe.
An investment property is a vehicle to take a person from a current set of circumstances in present time, to an anticipated improved set of circumstances in the future. It is important to understand more broadly what is at play currently and potentially in our future before we make a decision about what is the best vehicle to take us there.
Many clients I speak to have questions that I can answer in response to when, where and what to buy according to their brief. Let’s assume they have already had clarification from their other expert advisors on finance, legal considerations, structures etc. However, the most critical step often comes before any of this is required. This is where investors need to deeply appreciate their plans, WHY they are buying and what outcome they are seeking. This requires a deep dive to better understand the form they see this taking and the time frame for delivery of the outcome. Taking stock of their current personal circumstances, potential known changes and then probing with well-constructed questions, we can explore scenarios and situations we previously may not have considered.
Experience has proven that many of the best laid plans change. As an example, clients who initially outlined their desire to purchase an investment for $750K in 2016, after exploring a number of scenarios, settled on a purchase at $530K. I was very cautious for them to spend to the maximum they were approved for, given their personal circumstances. They were living in regional Western Australia, had plans to marry however no plans to move any time soon. They were well equipped with both equity and cash to buy an investment and did not own a principal place of residence (PPR). They were buying jointly with a cash contribution from one and equity from the other. After a deep scenario exploration, I advised they speak again to the accountant with a new set of questions. They chose to utilise the equity as the deposit rather than also using their cash, and successfully completed an intestate purchase.
They had no idea then what lay ahead for them. Less than 18 months later, they are married have a beautiful baby girl, have moved from regional WA to Canberra, ACT and changed jobs. They are currently in the process of purchasing their first PPR. Their more conservative investment has worked very well, & they still have cash reserves to utilise for their PPR. They do not face the prospect of a significantly higher, non-deductible home loan as would have been the case. They have reduced cash flow as they are not both working full time, yet they have a sound investment vehicle, choice and flexibility to buy a home and then continue their investment strategy.
Nothing in life is more sure than change. Set yourself up for success by looking deeper than you might have thought necessary. The key lies in the questions you ask.