Originally published on Smart Property Investment
Do any of these situations apply to you?
Have you been a “gonna” about getting into property investing? Thinking about it, asking questions, listening to the daily media reports and reading up? But you just don’t know how to move forward?
Do you find that there is so much conflicting information, so many promises from so many people, many saying different things, using language and terminology you don’t fully understand, and an industry that is self-regulated and professionally regarded as not really trustworthy?
You are not alone. The majority do not understand the basic fundamentals of property investment. Why would they – where do you learn this information? Many learn bits and pieces from family and friends, at barbeques, from reading books or going to seminars. Many learn through experiences, some good and, unfortunately, often bad.
This really is extraordinary given the large amount of your money you are willing to trust to this process to deliver you an outcome that will hopefully be positive and in your best long-term interest.
To overcome this, you need to take a two-pronged approach.
Part 1: Understanding simple foundational fundamentals and then build on that knowledge, getting sound professional advice that is not energetically “hyped” up to just sell you something and surrounding yourself with a trusted professional team is an excellent start.
– Decide and clearly understand what outcome you are seeking to achieve.
– Understand what different outcomes property can deliver and the different strategies that can be used, and therefore which of these will better serve your circumstances and the outcome you seek.
– Understand the cycles of property and how capital growth and rental growth are counter cyclical.
– Understand what factors drive supply and demand fundamentals and rental appeal
– Learn how to identify what locational infrastructure benefits will actually increase and sustain growth.
– Be prepared to look outside the area you live in.
– Understand leverage, the benefit of gearing.
– Get qualified independent advice on different ownership structures; personal name, joint names, Trusts, SMSF, etc.
– Get qualified independent advice on different finance structures and the effect of interest-only loans.
– Understand the impact that variables like interest rates, vacancy, varying economic climates and policy changes may have on you.
– Consider your current personal circumstances and how potential significant future changes in your life may affect: marriage, moving, children, employment, wellness, etc.
– Gather a team of quality, independent professionals around you. Businesses that offer you all or some of the following as a package; finance, property search, accounting, financial planning, legal work and life coaching to boot are so fully conflicted it’s hard to understand how some of them are allowed to operate. Avoid them.
– Be prepared to be flexible… once you have improved your understanding you may alter your initial outcome to become more aligned with new possibilities new understanding has uncovered.
Part 2: You have to better understand yourself. So often, regardless of the property education and understanding the investor has, they often self-sabotage the entire process by not understanding what drives them, what inner tendencies they have emotionally and mentally that override their sound knowledge. You need to understand how you unconsciously react when you are feeling excited, elated, fearful, out of control, threatened, etc, as often our response is automatic.
Before we know it, we have taken an action that actually is way off track from our original thinking and strategy. If you understand this, you are more alert and aware to the provocations and better able to utilise an internal strategy that will realign you.
For example: A client was looking to buy a property for long-term hold and growth, and was going through the process of gaining an understanding of the dynamics of how property cycles work, where certain cities are on the “property clock” and how to identify areas ahead, more likely to deliver the growth outcomes he was seeking.
He was away on a weekend country break, and on a Saturday morning, saw a rural property with a 9 per cent yield at an auction. It was a beautiful bungalow in a quiet little tourist town, with a picket fence, sprawling roses, and a fresh coat of paint. The agent told him how impossible it was to achieve a 9 per cent yield in any capital city and the area was “really going off”.
So he bought it then and there. Now while we would all wish for a 9 per cent yield, this client’s intent was for capital growth. He may get some growth over a very long time; however, there are no evident fundamentals that will drive that location to deliver above or even average growth now or into the future.
This result is fine if you want to be able to say you own an investment property. It is not fine if you want to own an investment property that will deliver you a positive financial outcome.
Although this sounds like a lot to embrace, given how much of your hard earned money you are required to invest to purchase a productive investment property, it is well worth considering.
So as I said initially, you need to clearly identify the outcome you are looking to achieve and then, armed with an understanding of how to efficiently and effectively achieve this outcome, proceed with your professional team of experts to guide and serve you along the way.
Happy investing ….this is a great year for it!