The best way to become a powerful property investor

The best way to become a powerful property investor

Securing a powerful property investment portfolio can be an amazing source of financial security. But when getting started, it is vital that the right steps are followed.   Why are you doing it? Be clear about your reasons for choosing to invest in property instead of other asset classes such as shares. Some do it for the wrong reasons, such as trying to keep up with their neighbours or friends who are investing. Property investing is not a competition.   Understand the risks Just because prices have been growing consistently for a number of years doesn’t mean they’ll go on indefinitely. Growth in value is rarely consistent and linear. Precise capital growth is hard to predict. Sometimes there are vacancies or tenants that default. There are ways to reduce these risks, but they remain a part of investing in property. If the area is in high demand, discounts are virtually non-existent as vendors know they could get the price they want.   Be a long term investor There’s no guarantee that you see growth quickly. While some areas may experience rare short-term surges, the majority of suburbs go through periods of slow to no growth before values rise. Be prepared to hold your property for at least 5 years if you want to make a solid gain. Make sure you have a solid cash flow to maintain your property to avoid selling prematurely.   Learn, learn, learn While you’re building your deposit, learn everything you can about property investing. Buy a few books from a range of authors to get a variety of opinions. Once you start hearing the...
Identifying the drivers of capital growth

Identifying the drivers of capital growth

In this mix, the undeniable metric that should be of most importance to investors is capital growth. And although capital growth may be another overused term in property investment conversations, it is essential that it is understood so risks can be reduced and outcomes maximised. There are many reasons people choose to invest in property, whether for the positive and negative gearing benefits, rental returns or even due to the perceived safety in investing in bricks and mortar. Looking at the Australian residential housing market, we can see that it has grown by 147 per cent over the past decade and 10.2 per cent in the past 24 months alone. In order to make sure investment outcomes are maximised when it comes to selecting a property, it’s important to understand what key driving factors have underpinned this growth to date. There are key driving factors that have influenced the buoyant Australian residential housing market over the past decades of growth, and they can be broken down into four categories.   Drivers creating demand It’s important to understand what drivers are creating demand. If you were to look at building approvals, are they growing at a slower rate than the population? If so, this can show that there may be an undersupply of property in this area.  Government influences As rules, regulations and grants can change at any time, government influences make up the second category of key-driving factors of capital growth. This can include government grants, building and stamp-duty saving incentives and supporting infrastructure programs. Economic factors Economic factors, such as employment and income opportunities in a given area, as...
6 Common Finance Mistakes

6 Common Finance Mistakes

There are more finance options available today than ever before, and with so much information at our finger tips, choosing a loan should be easy to do. But it isn’t always that simple. Make sure you’re not making one, or all, of these common mistakes. Going on spending sprees Banks only have a limited amount of funds to allocate to loans, and therefore need to ensure they only approve those who will be able to pay them back. Many new investors are applying for loans of 90 per cent and upwards, and given this high level of debt, banks and insurers look at purchases from past statements to determine the applicant’s consistency to determine their eligibility. Any erratic purchases or trends will likely lead to the loan being rejected.” Too much research Afraid of making an uneducated decision new property investors spend a significant amount of time researching each and every possible option. Although having an understanding of the market is important, if a person supplies their details with a bank regarding a loan, even if it’s just to enquire about rates, this can generate a hit on their credit file. Strikes on a credit file means banks assume the person has been declined elsewhere, making it harder to gain approval. Forgetting to pay bills Forgetting to pay one phone or credit card bill might not seem like an issue, but any missed payments places a default against a person’s record – which is a significant red flag when being assessed by banks and insurers. If a person is aware of any defaults against their name it’s crucial to be...
7 deadly sins made by investors

7 deadly sins made by investors

With interest rates at record lows, more people are deciding to buy an investment property to help fund their retirement – but some problematic trends are emerging. This is particularly true of eastern states’ capital cities such as Melbourne and Sydney, where annual capital growth of properties in some areas is up to four times the rate of inflation. In addition, more first-time investors are now beginning to target the Perth, TAS, Adelaide and Brisbane real estate markets as they view them as undervalued. Buying property is a great way to create wealth over the long term, as long as you avoid simple mistakes at the outset of your property investment journey. The sad fact is that many rookie investors never buy more than one investment property because they make avoidable mistakes from the very start. These simple mistakes, such as failing to undertake enough research, selecting the wrong home loan or not obtaining a tax depreciation schedule, can be the difference between success and failure for first-time property investors. Avoiding these simple mistakes means that rookie investors can build a successful property portfolio and thereby create long-term personal wealth. Below are some of the mistakes made by investors: Buying an investment property without thoroughly looking at capital growth and rental return potential. Research is critical when buying an investment property. Buying an investment property close to home rather than looking at investment opportunities throughout Australia. Failing to seek independent information. It is important to seek out people who own several investment properties and ask them how they managed to build their portfolio. Managing the property yourself. Not undertaking...
How to buy well regardless of the market

How to buy well regardless of the market

Researching a suitable location for your next investment can be a daunting process. Many investors don’t know where to start. Here are some points to help you buy well. Understand supply and demand Price growth happens when demand exceeds supply. All categories of research fall under one of those two main banners. Supply is easy to gauge, you simply look at what’s currently for sale, what is for rent and what is to be built in the future. You want as little supply as possible. Demand is a little trickier. There are a number of stats you can look at to get a good gauge. This include: Days on market: This is the number of days it will take for a property to sell once it’s advertised for sale. On average, it takes about 90 days to sell a property. In a strong market, where demand outpaces supply, this number will be lower. Vendor discounting: In a slow market where demand is low, vendors might struggle to get buyers interested. In this case, they drop their asking price. If the area is in high demand, discounts are virtually non-existent as vendors know they could get the price they want. Vacancy rate: The vacancy rate is a measure of how many rental properties in a suburb are untenanted. In a high-demand area, renters will be fighting for any available rental properties, and so this number will be low. Auction clearance rate: The auction clearance rate is the number of properties that sell as a percentage of those that go to auction. With more sales, there will be a higher clearance...
Borrow less and LIVE more!

Borrow less and LIVE more!

It sounds like a noble sentiment – but would borrowing less really solve the financial issues of the average Australian family? Would it allow them to live life on their terms and achieve an early retirement, or choose their work/life balance based on what they want? In order to achieve financial independence, it is necessary to look beyond the amount of debt we take on. Having a strategy that will allow us to exit the rat race sooner will enable us to focus on what is really important in life — without needing to worry about work. More than half of home owners choose work before family Research reveals 56 per cent of mortgage holders miss out on spending time with family because they choose to work more in order to pay off their mortgage. Other key findings include: 54 per cent of mortgage holders have gone without taking a family holiday due to financial pressures; 59 per cent of mortgage holders have cut a family holiday short because of repayment considerations; and 50 per cent of mortgage holders turn down at least two social outings a month because of mortgage pressure. What choice do Australians have in an expensive property market? For Australians living in the nation’s capitals, borrowing less hardly seems like an option. For average income earners, buying a house in Sydney means saving more than one year’s income just for a deposit. It does seem crazy to take on more than a million dollars’ debt just to buy the family home, but this doesn’t mean we should give up on home ownership altogether. Despite what most...
What is effective property negotiation?

What is effective property negotiation?

Property investors need to have strong negotiation skills, but when talking about negotiating the first thing that comes to mind for many is the price. Buyers love the idea of getting a bargain or paying ‘under market value’, whilst the agent and vendor are focused on achieving the highest price possible. In many property transactions the price is the most important factor, with all other aspects of the deal being insignificant or irrelevant. But in some cases, it can be the difference between a successful negotiation and being left empty handed. Be creative Buyers who are able to provide flexible settlement terms will have an edge over someone who must settle within a certain timeframe. Vendors who have already bought another property may need to settle on a specific date. Any buyer who can match their terms help them avoid bridging finance or other expensive moving costs. For vendors who haven’t purchased yet, a longer than average settlement could be appealing to give them time to find, purchase and settle on their new home. The vendor’s request for settlement terms generally gives some insight into their position, without having to ask the agent intrusive questions about why they’re selling. Another option which vendors or agents might not consider (or suggest) is the prospect of a short settlement with a lease-back option upon settlement. This means the vendor can have access to their funds earlier, without the risk of having to move before they’re ready. The lease should be drawn up either as a short-term license agreement by a solicitor, or as a formal Residential Tenancy Agreement (with a lease agreement, bond...
Property 101: Airbnb guests breached tenant’s lease of property

Property 101: Airbnb guests breached tenant’s lease of property

This is an old decision but one that should be remembered. In June 2016 the Supreme Court of Victoria handed down its decision in the case of Swan v Uecker [2016] VSC 313. The case is heralded as a victory for landlords after the Supreme Court held that, by allowing Airbnb guests short-term use of their rented apartment, the tenants had breached their lease by sub-letting the property. The Landlord (Swan) leased her apartment to the Tenants (Uecker and Greaves) pursuant to a residential tenancies agreement (lease). During the course of the lease the Landlord became aware that the Tenants were making the apartment available to guests via the Airbnb website. The Landlord had not consented to the use of the property in that way. The Landlord subsequently sought an order for possession from the Victorian Civil and Administrative Tribunal (VCAT) on the basis that the Tenants breached their lease by sub-letting the property, without the Landlord’s consent, when making it available to Airbnb guests. VCAT dismissed the application. The VCAT decision held that, despite offering the property to Airbnb guests, the Airbnb Agreement between the Airbnb guests and the Tenants as hosts did not entitle Airbnb guests to exclusive possession of the property and granted a mere licence to occupy. On this basis, the Tenants “had not sub-let their tenancy agreement” with the Landlord. The Landlord appealed to the Supreme Court. The Supreme Court held that the Airbnb Agreement between Uecker and Greaves and the Airbnb guests was characterised as a lease, rather than a mere licence. Accordingly, the arrangement to allow Airbnb guests to occupy the property constituted...
Factors that contribute to the decision making for investors

Factors that contribute to the decision making for investors

It is important to consider a range of factors when choosing an area where you would like to invest in property. You have to ensure that you don’t get caught up in just one statistic or factor, as that factor alone could be painting a different picture than the one you want to eventuate! There are many growth drivers, and they all work as only a small part of an overall puzzle, somewhat like a jigsaw puzzle. With too many pieces missing, the puzzle just does not work.  The more pieces you can fit into that puzzle, the better the picture becomes. Where property is concerned, the pieces are the growth drivers, but taken alone a single piece is not enough, or may not provide the right picture. Take the ‘housing starts’. The idea behind ensuring that there is not too much development going on is to ensure that the area is not oversupplied with property.  Since the only thing which ultimately drives growth is demand, an oversupply of property will dilute that demand and lead to a sustained period of low, or no growth. If you are looking in smaller areas to get started you may find an area with 50,000 population and low housing starts, but those low housing starts figures could be because no one is moving there, or there is little employment or anything else happening in the area.  And so the low housing start factor must be combined with a population growing faster than inflation, diversified employment, no new land for future development and a number of other factors for it to be a...
Property owners warned about under-insurance

Property owners warned about under-insurance

Adequate insurance coverage is vital to ensure your risk is reduced for unforeseen circumstances. The widespread damage to properties by storms covering such a large geographic area shows that no-one is immune from having their home damaged. And as we enter the summer months when the danger of bush fires is also extremely high in some areas of Australia, it is timely to remind property owners to have adequate insurance cover. Many people underestimate the cost of repairing or rebuilding their homes because construction costs have risen very sharply over the last decade. The danger of underinsurance has been highlighted by the Australian Securities and Investments Commission (ASIC) in its report, “Getting home insurance – A report into underinsurance”. ASIC notes surveys which have found that between 27 per cent and 81 per cent of home owners were underinsured by 10 per cent or more. ASIC also highlighted research which found that 24 per cent of consumers did not increase their insurance following renovations costing between $20,000 and $60,000. The danger of underinsurance is particularly high for first-time property buyers who have little equity in their homes and may try to save funds by limiting their level of insurance. It is a traumatic enough experience to have your home destroyed by a fire or storm. However, it is even more traumatic if you don’t have the necessary funds to rebuild the property due to lack of insurance. In addition, it is believed that only a very small proportion of investment properties have some form of rental insurance product. These insurance products provide the investor with protection against malicious damage...
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