These days, property investment is something of an obsession for numerous Australians, who see it both as a secure place to store their savings and as an investment with the potential to significantly increase their wealth. The average Australian will have noticed that over the last couple of decades many of the world’s wealthiest people have made their fortunes in property and that property prices seem to be on an ever upward trajectory. Though this last statement is of course not true, it still remains the case that in a world in which banks and markets can go belly-up, property still represents a relatively safe and shrewd investment.
Building a property investment portfolio has advantages for all kinds of people across the financial spectrum, from young investors starting out with their first home to experienced investors wanting to diversify their portfolio to those thinking about retirement who want to both invest in their future and add to their retirement income. However, whilst reading about property investment and watching property renovation TV has become a national pastime, only a relatively small number of people actually commit to investment and go on to build themselves a portfolio.
Here at Evergreen Wealth Management we offer advice to people who want to go on and make that first step by helping them to identify what level of property investment would be right for them. We then show them how to go about it in a safe way that balances risk and reward and by making sure firstly that they know what they are taking on and secondly that they understand the advantages and disadvantages of such an investment will be.
When done in the right way, property investment can offer the best of both worlds providing long and short term financial rewards (short term from property rental income and long term from capital growth.) At the same time unlike many other investments, property has the advantage that it also offers some security for your portfolio. Unlike stocks, shares and other financial products which can collapse in value, property has the distinct advantage that even in a worst-case scenario (when property values go down) the investor still has something physical – a bricks and mortar building – to show for their investment which can be rented out until the market goes up again.
Residential property has always been seen as much less volatile than any investment in the financial markets and is even encouraged by the Federal Government with some very generous tax incentives for people wanting to develop new properties. What’s more there are levels of investment for people of most budgets which often means you can start out small, dip your toe in the water and see if property investment works for you, without taking too many risks.
At the same time, it is also always worth pointing out that there are some risks associated with property investment and it may not be for everyone. The main risks come when people jump into investing without considering all of the pitfalls and without doing their preparation. Unfortunately, many Australians see only the potential rewards and don’t approach their investment with the necessary caution and forward planning. For every one of the successful and wealthy property millionaires you read about or see on TV there will be hundreds of property investors and landlords who have over extended (or bought the wrong type of property) and are struggling financially and not achieving the potential rewards they hoped for. The difference between the two? Forward planning, sensible assessment and sticking to certain key principles.
Elsewhere on this site you’ll find our free 12-step guide to smart property investment which offers advice on how to get started sensibly and on a sure-footing in the world of property investment. For starters though, there are three key questions you should ask yourself. Have I done enough self-assessment? Have I done enough research? Have I done enough planning?
Before you do anything, before you even think about talking to anyone or start looking at houses or locations you need to conduct a thorough investigation of your own finances and work out whether it’s the right time for you to be making an investment? This means looking at your total income, total savings and then at your combined outgoings and total debts. This will help you to work out how much deposit you could afford and how much you could pay back every month with or without tenants. At the same time you should also ask yourself firstly if you’ve got the right temperament for property investment, secondly if it’s something you want to take on alongside your current job and thirdly whether you want to sink your savings into it?
This should start months before you get anywhere near putting money down. You should be living and breathing the property section of your paper, keeping an eye on property prices in areas you are thinking of investing in, talking to real estate agents and developers and visiting neighbourhoods. You should be keeping abreast of the up and coming locations, checking out new developments and scouting out any land that is up for sale, learning about the rental market and investigating whether the surrounding infrastructure will facilitate growth.
Finally, once you have an area in mind you should also learn your way around all the different mortgages and loan types on the market so you can identify the type of loan that will best suit your anticipated financial needs. You should work out what type of property investment you want (established or new build, for example), what style of property you want your investment to be (city flat or suburban home for example), what sort of legal structure you will be putting in place for your company and how you then want to approach the various tax implications of that decision. All of this should be done with the help of a good independent mortgage broker. Finally, you also need to plan how you want to approach the investment when it comes to gearing – whether to gear your investment for positive cash flow or negatively, (something normally only done later in your portfolio.)
If any of this sounds confusing, don’t worry, it’s all explained in detail throughout this website.
The main point to remember is that if you decide that property investment is for you, there are a number of different strategies you can employ to make it happen and which you can use to make a success of your investment. They range from buying a property and getting tenants in (thereby concentrating on the rental market) to buying a fixer-upper and concentrating on renovation – either cosmetic or something much bigger – and resale, to building your own property on land you have purchased and becoming a fully-fledged property developer! The common denominator on making a success of any of these is realizing you are building a business and approaching each decision with your business head on. Stick to the aforementioned principles of self-assessment, research and planning (as well as going through our 12-step guide to smart property investment) and you should be able to find a balance between sensible, safe investment and the profits that are there to be made. Your primary aim should nearly always be making a safe and secure investment for the future, particularly when first starting out. Here at Evergreen Wealth Management we would always advise first time investors to look to slow and steady growth from a first property with the aim of adding to and diversifying a portfolio at a later date and from a position of strength. Follow these principles and you will see strong growth and strong returns for many years to come!