Property investment rules to keep in mind in troubled times

1. Become financially fluent

The secret to financial freedom is to spend less than you earn, save the balance and then wisely invest your savings in growth assets.

Learn how money, finance and property works and start investing early so you have time and compounding on your side.

Along the way learn from proven mentors and get a good team around you, but make sure you have a thorough knowledge base, because while you can delegate or outsource many tasks, it’s critical to understand if you’re being given impartial advice or if you’re being taken advantage of by the many vested interests after your money.

Becoming financially fluent you will get invest rather than speculate.

One of the reasons most investors don’t develop the financial freedom they deserve is because they don’t understand the rules of money and they end up buying their properties with emotion.

Be it your first property or your next property, it should be part of a long term plan and a stepping stone to building a substantial portfolio.

The problem is most people buy their investments with emotion.

They’re looking for a property that they would be happy living in, or the buy in suburbs near where they live, or where they would like to holiday location or near where they plan to retire.

But, of course, property investment is different from buying your own home – you need a well thought out strategy with measurable goals.

By having a plan and a system to gauge the worth of an investment you will achieve better results.

But it can’t just be any old strategy…

2. Not every property is investment grade

While virtually any property can become an investment — just put a tenant in; few properties are “investment grade” and will strongly outperform the averages over the long term.

Remember that while the location of your property will account for around 80% of its performance, it’s also important to own the right property to suit the local demographic.

3. Location does the heavy lifting

Location will do 80 % of the heavy lifting for your property’s performance and that’s why I only invest in certain suburbs of our three major capital cities.

Now I know there will always be people telling you to invest in regional Australia but why fight the big trends?

Most jobs, most wages growth, most population growth and most of our economy happens in Australia’s capital cities and in particular in our big 3 capital cities.

The inner and middle ring suburbs will always outperform with regards to capital growth and have done so over the last 40 years.

Interestingly it wasn’t always this way – at federation regional land was as valuable as capital city property, then we became an industrialised country and people moved to the city.

Now we no longer manufacture goods – it’s all about services – that’s where the higher paying jobs are and these people have more disposable income.

By the way…I’ve always recommended investing in locations where people have higher disposable incomes and are able to and prepared to pay a premium to live there.

These tend to be the more established suburbs in our big capital cities, and the surrounding gentrifying suburbs.

Not surprisingly these are the areas were properties are holding their values well during the current coronavirus pandemic.

I can hear some people thinking “Isn’t all the good land taken – isn’t it unaffordable to invest in the 3 big capital cities?”

Fact is, the way people are living is different today…

We’re trading space for place – trading back yards for balconies and courtyards to live in the inner and middle ring suburbs of our big capital cities, which means you don’t have to own a house. Townhouses, villa units and low rise established apartments in the right location make great investments.

I know there are people out there coming to invest in the new outer suburbs, but I’m not really convinced that land in Penrith or Point Cook or Toowoomba will ever be more valuable than land near the harbour.

Think about it – where would you live if money was no object?

4. The economy and our property markets move in cycles

One of most significant trends I’ve seen over and over in the past almost 50 years of being a student of economics is that investment markets constantly go through cyclical phases of good times and bad.

However, it’s a common fallacy that Australian property cycles last 7-10 years.

They vary in length and are affected by a myriad of social and economic factors and then, at times, the government lengthens or shortens the cycle by changing economic policies or interest rates.

Market sentiment is one of the key drivers of property cycles and one of the reasons why our markets overreact, overshooting the mark during booms and getting too depressed during slumps.

Remember that each property boom sets us up for the next downturn, just as each downturn sets the scene for the next upswing.

5. Don’t focus on bargains — they rarely have a future

In today’s informed market there are very few bargains.

Sure we are experiencing fewer property transactions because of the effects of coronavirus, but there is a flight to quality and buyers have become more discerning.

While it’s often said you make your money when you buy your property, and that’s true, it’s because you buy the right property not because you buy cheaply.

Getting your property $10 -$15,000 cheaper will be a one off bonus.

On the other hand buying a property with above average capital growth potential deliver recurring compounding benefits

Think about it…Properties that no one else wants today will probably be the type of property that no one else will want in 5 years’ time.

Price is what you pay, value is what you get; so buy the best property you can afford — the type of property you’d still be happy to own in 10 to 15 years’ time.

Source: https://propertyupdate.com.au/property-investment-rules-to-keep-in-mind-in-troubled-times/