11 investment fundamentals you should never forget
It never ceases to amaze me how few people have a strategy in place for investing in property. This is a trait I have witnessed in those just starting out in the market as well as industry veterans.
Considering that, for most people, property is the single biggest asset they will purchase; it is of utmost importance to have a firm investing strategy in place. Whether you are an experienced investor or a novice looking to break into the market, my tips can help you to buy smarter and achieve better returns in the long term. These tips form the backbone of my strategy for Empire clients and for my personal investments:
1. Choose property that’s attractive to tenants
Any property you purchase should be in reasonable condition (or able to be upgraded for a reasonable price), have good sized bedrooms, off-street parking and good positioning away from noise and main roads. Look for something that suits the majority of tenants in the area to ensure your property is always attractive to renters. A property that is always tenanted means a stable income stream. 2. Choose property that will grow in value Properties in locations close to the CBD, leisure facilities, schools, public transport and beaches (where possible) are more likely to gain value in a good market and less likely to lose value in a down market.
3. Buy blue chip.
If a property seems too cheap to be true – it probably is. Cheap properties are cheap for a reason, and that reason is the lack of demand for properties combined with an oversupply in the area. In general, it is worth paying market value for a good property in a top suburb rather than a property that is cheap because no one really wants it. Blue chip will mean different things in different areas and so that could mean two-bedroom units in some and four-bedroom houses in others.
4. Create instant equity through simple renovations.
Quick, low-cost renovations such as a paint job, recarpeting, tidying the garden, painting the fence, installing new curtains or blinds and replacing kitchen cupboard doors can have a significant impact on the value of your home. A good rule of thumb is to aim to get back at least $1.00 – 2.00 in value for every dollar you spend on renovations.
5. Create a buffer by refinancing.
When your property has grown in value, it’s sensible to create an emergency buffer zone by refinancing. This will ensure you can continue to make mortgage repayments even if unforeseen expenses or loss of income (such as losing your job) occur. Don’t find yourself in a forced-sale position, as you won’t get the best price and you may have to pay capital gains taxes and other expenses.
6. Re-sign your tenants.
Hire a professional property manager to ensure you get reliable tenants who pay a good market rent. Consider tying your existing tenant down to a new 12-month agreement to help guarantee your rental income.
7. Get an independent valuation before you buy.
Buyers can get emotionally involved when buying property, causing them to pay more than the property is worthy. Even if you’ve viewed 100 properties in an area and checked what they sold for, their relative sizes and their aspects, buyers can still pay overinflated prices for properties. I’ve seen literally thousands of properties in my area over the last decade and I still pay for an independent valuation every time I buy. By investing a few hundred dollars on an independent valuation, you can almost guarantee you will never pay too much or accidentally miss something.
8. You don’t have to sell to profit.
Don’t think you need to sell to realise capital growth gained in a property. Selling a property incurs sales costs and taxes and, often, re-buying costs. By refinancing you have access to profits made on the property while holding on to your asset. This is similar to a reverse mortgage.
9. Property investing is all about time in the market.
Many people try to wait until the market is at a low before buying. Long term investors know that timing the market is for speculators not investors. If you can afford to buy and hold on to your asset, now is always the right time to buy.
10. Stick to your strategy.
Every investor requires their own strategy, as circumstances vary and everyone is risk adverse to a different level. Work out what works for you. Once you find the strategy, stick to it. You need to be aware of other opportunities and get other advice, but often these can be distractions. A good strategy doesn't have to be complicated – it's often the simple things that work. My own strategy is to buy and hold as to sell and re-buy takes most of your profits. The technique I use is to refinance my property yearly where possible and use part of the cash to cashflow my properties and part as deposits on costs on further properties to keep my portfolio growing.
And my most important tip:
11. Build a team of professional advisors.
You can’t do everything yourself. An initial outlay for hiring professionals who are experts in their field can make a difference of tens of thousands of dollars to your long term returns. As a starting point, every investor should have an accountant, mortgage broker, financial advisor, valuer, building inspector and buyers’ agent. There are companies who will organise all of this for you. For instance, at Empire, we build property portfolios for time poor professionals and we have built up a whole network of contacts that are the best in their field and able to make your property investment a success.