Short Term or Long Term Strategy? Essential Tips for Your Best Investment
If you’re attending the HomeBuyers’ show – or even if you’re just looking at its website – chances are you’re keen to get a foot in the door or add to your portfolio. As a professional investor and buyers’ agent I meet hundreds of people who are interested in investing, but most have a short term view. They concentrate on getting that ultimate bargain, turning it around and then selling month later for a fortune. They concentrate on doing the work without understanding the numbers and in doing this they miss the big picture.
One of the biggest problems with taking a short term view is that you will incur significant agents’ fees, legal fees, stamp duty and, above all, capital gains tax. All these eat into your profits, and in the end you’ll be lucky to have made any decent profit at all. So how do you take a longterm view and reap returns from your property investment? Here are my essential tips:
Build a portfolio:
As a long-term investor, my personal strategy is to accumulate as much investment property as I can, as I believe that if I buy something for $500,000 - $1 million, at some point in the near future it will be worth $2 million. This may seem daunting at first, but once you have one property you can use the equity to buy another, then another, which brings me to the next tip:
If possible, never sell:
Most people think that you need to sell to realise a gain, but that’s not the case. Property is a longterm investment. My strategy is to hold onto properties in order to benefit from capital gains, rental yields and equity in your property. The goal is to get your properties working for you to create passive wealth.
It’s not always about buying a property at the best price, but about buying the right property:
Look for median priced, blue chip properties. These are the properties that will always attract tenants, will grow in value and will provide solid rental returns.
Recognise that growth isn’t always consistent:
Your property is not likely to skyrocket overnight. However, smart long-term investors can achieve $40,000-50,000 per property, per year, in capital gain. If you own just two properties, that’s $100,000 in passive income – which is like having a fulltime job, without having to do the 9 to 5.
Keep part of the equity aside as a buffer:
This is like an emergency fund for when things go wrong or for when interest rates rise. When everyone else panics as rates rise, some people will choose to sell, and if you’re cashed up, there’s an opportunity to get a great property at a reasonable price.
Invest in professional expertise:
Property investing involves large amounts of money so you’ve got to treat it like you would treat any other business. Professionals have a better understanding of the market and can usually do things better than you, making you more money in the longterm. Even though people hire me to buy and renovate their portfolios, I still use teams of valuers, building inspectors and strata inspectors so that I know what I’m buying into. Remember - often you’ve got to spend money to make money.