The worst real estate investment advice I have heard was that property investment is easy.
This was clearly wrong because most property investors fail!
Look at the facts – 50% of those who get into property investment sell up in the first 5 years and of those who keep their properties, the vast majority never ends up owning more than one or two properties.
This means they don’t ever achieve the financial independence they desired.
However over the years I found property investment is simple but, not easy…and that’s not a play on words.
It’s simple if you follow a proven formula but it’s really hard to become wealthy in property if you do what everyone else is doing.
While many investors chase cash flow or the next hot spot, I’ve found successful investors build their asset base by using a 5 point strategic approach to property investment that ensures the properties will outperform the market averages.
1) Look at the type of property that has wide appeal to owner occupiers (who make up the bulk of property purchasers)
2) Try to source property below its intrinsic value. (So you don’t pay a premium for new or off the plan properties)
3) Look at areas that have a long history of strong capital growth and will have strong future capital growth because of the demographics in the area (rising disposable income or maybe gentrification.)
4) Look for property with a twist; something unique or special or different or scarce
5) Source property where it may be possible to “manufacture capital growth” through refurbishment renovations or redevelopment.
This enables you to minimise your risks and maximise your upside as each point represents a way of making money from property and combining all five is a powerful way of putting the odds in your favour.
If one point lets you down, there are two or three others supporting your property’s performance.
1) Understand the cyclical nature of the property market
Prepare for the lean times by having a cash flow reserve to see through the down times of the property cycle or to handle unforeseen expenses.
Rather than use your full borrowing capacity and buy the most expensive property learn the concept of setting aside a buffer.
You may be concerned that you may not be using your full borrowing capacity but, having this safety net may help you get through rising interest rates and let you sleep peacefully at night through future property cycles.
2) Treat your property investing as a business
Over the years I’ve seen a small group of property investors, those who treat their investments like a business, become rich by growing a multi-million dollar investment property portfolio.
They do this by understanding “the system” and getting the right type of finance, setting up the correct ownership and asset protection structures and knowing how to legally use the taxation system to their advantage.
Let’s face it; the majority of Australians will be always be employees but, we all have the ability to become financially free by becoming property investors who treat their investments like a business.
…and you can set up your own property investment business while you are still an employee or self-employed.
These successful investors built their wealth by growing their real estate portfolio one property at a time and while this was going on they lived off the income they earned from their day job.
They started off with one property, then leveraged off its capital growth to invest in another and another until one day they found themselves with a true property investment business.
One that gave them financial freedom and choices in their lives