Diversify and take advantage of all property cycles

Diversify and take advantage of all property cycles

A key decision investors face when they are growing a portfolio is whether or not they diversify into different locations.    There are many different reasons why an investor might focus on a single area or purchase in different locations. Aside from the investment thinking behind the decision to diversify or not, there are also financing implications that you should consider.    Having a well-diversified portfolio means that your assets will likely grow at different paces at different times. Good finance structures allow you to borrow against individual assets, rather than your total portfolio position.    This means a well-diversified property portfolio can provide a more consistent source of equity growth in your portfolio, making it easier to release equity over time and helping investors grow their portfolios during slow markets.    The key to this is ensuring that your loans are not cross-collateralised, a common financing problem for investors. A cross-collateralised loan is a loan secured against more than one property.    Having each loan only secured against one property means your properties are separated in financing terms. This allows you to release equity from one property if it has grown in value, regardless of how the rest of your portfolio is performing.    A case, for example, of diversification below can help you release equity:  David and Susan are best friends and have decided to make 2017 their year to invest in property;  David’s strategy is to buy what he knows. He buys seven investment properties in his local area;  Susan takes a diversified approach and opts to buy seven investment properties in seven different locations;  Both...
Investment tip: ‘Plan with the end in mind’ 

Investment tip: ‘Plan with the end in mind’ 

One of the main questions that is common among budding property investors—the all too familiar clashing of investment goals and personal considerations. While both are important, there are completely different mindsets required to deal with them.  Do not confuse knowing your city neighbourhood, where you live and where you’ve grown up, with knowing a market because they are two completely different things. Living in a suburb means you know the social amenities and the busy roads … but that’s largely irrelevant if the outlook of that broader city is not particularly good—there are two different mindsets required there. You need to have an investor mindset and also see property as a financial instrument.   Investing in properties is obviously a big decision to make as it entails risks that are quite costly for most people. Someone who’s only beginning to dip their toe in the business of creating wealth through property, must already start thinking about his ideal ending.  All big decisions, plan with an end in mind. So, what is the end in mind? The end would surely be “you’re contemplating investing in property because years down the track, you don’t want to be strapped to a government-funded pension which isn’t going to provide much of a lifestyle.”  “Is buying a property in your local suburb going to help you do that?”  That will be based wholly and solely on your personal requirements and emotion. On the other hand, when you take a critical look at this massive country called Australia where there’s a lot more opportunities, will one of those opportunities be better for you?  While your local...
Habits of investors who have grown massive portfolios 

Habits of investors who have grown massive portfolios 

The habits that differentiate these investors with massive portfolios from those who have only succeeded in purchasing and maintaining a couple of investment properties are:  Understand the fundamentals Successful investors, first and foremost, familiarise themselves with the most basic fundamentals of investing in properties. It comes down to your ability to hold the property, which comes down to cash flow.  Asset selection should be an important part of the process for property investors looking to succeed in the business of wealth-creation. You can have one property that takes all your negative cash flow or you can have 10 properties that takes that same amount of negative cash flow—it is one of the fundamentals. That is a leveraging get off smart cash flow management.    Balance cash flow and yield Some of the factors involved in maintaining the portfolio’s cash flow of successful investors are rents and rental yields. Striking a good balance between the two is one of the most important secrets to success in the business of creating wealth through real estate assets.  The bigger investors understand how much negative cash flow they can afford on a month-to-month basis, and they balance that.    They use a ‘strategic point of view’ Since getting finance has become harder, smart investors always make it a point to ‘strategise’ in order to maintain good serviceability and borrowing capacity.  They’ll take on strategies like ‘Where in my portfolio can I add a granny flat that’s going to increase my cash flow and increase my serviceability?’ They’ll look at it from a strategic point of view. They think  differently around things so you can look...
Things you don’t need to make a property investment

Things you don’t need to make a property investment

There is no shortage of commentary within the market on what property investors need to start their investment property portfolio. However, what are the things you don’t need to get started now?    First up, a credit card  Don’t believe the hype, credit cards don’t help your credit rating. In fact they are more than likely going to inhibit your ability to borrow rather than help.  Always focus on getting your mortgage approval before you attain or up your limit on your credit card to maximise your borrowing capacity.  ‘So, if you have a $5,000 limit, for example, this will reduce your borrowing capacity when being assessed by the banks. Therefore, where possible, reduce your credit card limits or cancel unused credit cards.’    You don’t need experience  Let’s look at the facts, every investor started somewhere. Just because you haven’t bought a property before doesn’t mean that should stop you from starting now. The only way to get the experience is by doing it.  It can be a daunting step, however, surrounding yourself early with industry experts including in investment property focused mortgage broker, accountant and buyer’s agent can help you build up the knowledge and confidence to buy the correct property the first time around.    Be an expert  You don’t need to know everything. Use your team for what they are good for. Years of experience and expertise. This can fast track your outcomes rather than making a lifelong mistake when buying your first property.  Build a team of industry experts including in investment property focused mortgage broker, accountant and buyer’s agent to ensure that your first purchase...
Why property investors must pay attention to ‘mini CBDs’ 

Why property investors must pay attention to ‘mini CBDs’ 

Contrary to the belief that the best areas to purchase properties in are capital cities and central business districts, many investors are now looking into smaller CBDs as the next hotspot for property investment.   Sydney and Melbourne are considered gateways of Australia’s expanding population, but migrants are not the biggest factor to consider when scouting for a location.   Here The Demographics Group’s Bernard Salt, offers some opinion on smaller CBD’s. Although migrants are “fuel into the greater furnace”, there is a more important question to be addressed: “How will this area look like with five million people? How about with eight million and so on?”   He explained: “At five million, you’ve got Sydney CBD and the inner suburbs … There’s been growth around Chatswood at a business hub, around Ryde and Epping … [and] Parramatta.”   “By 2050 there will be hubs, I think, particularly around Parramatta … and Blacktown [and] Badgerys Creek … Genuine satellite cities. “ “Sydney at eight million people cannot continue to have people living on the edge, getting on the train in the morning, and commuting into the city centre. What will happen is that the city centre jobs will start to be replicated in stronger, suburban, regional centres,” the social commentator added.  Bernard gets into details about how people create “mini CBDs” within a metropolitan area, and what this could mean for property investors all over the country:    How will you compare Sydney to other capital cities in the world?  Bernard: Los Angeles doesn’t really have a single CBD the way [that] Sydney does. There’s something in the CBD, but there’s also at Anaheim, also in Orange County, also at Irvine, also in the San Fernando Valley.  When you get to cities that...
Interstate investment: Don’t just look at the price.

Interstate investment: Don’t just look at the price.

When making the jump to investing in an interstate property, there’s more than just a price point that needs to be considered. Property investors who only look to their immediate cities could be short-sighted and should consider opportunities further afield. However, in doing so, investors need to focus on more than just compelling price points. There are different property cycles across the Australian economy all the time so investors considering an interstate purchase need to be aware of what is occurring in their target areas and can do so by seeking out the experts in those locations that have proven track records. The second step is assessing the vacancy rates. Low vacancy rates is always a good indication of how an area is performing, and there are quite easy ways for investors to access this information online. Investors should also look to where there’s good infrastructure going in, where the state has made a good investment in a particular area that should help to develop that location on the back of the infrastructure going in. Investors need to watch out for high vacancy rates as another guide. Are there high levels of over supply? This means that investors should be cautious. It’s really about doing your investigations, finding out who the experts are in a particular area and going to consult with them, look at their testimonials around their success and choosing them on that basis. It’s very hard to try to be an expert in a different area yourself and we should be very careful about buying in another state just because the price point is compelling alone....