Property Investing/ Property Advice:Series 2 of 7; Series 2:Tailored Plan: Part 3.
I believe you must engage a Buyers Agent with every property purchase, Using a Buyers Agents/Buyers Advocate and Property Advisor is key to more property investment success. These are extracts from my latest book “The Australia Property Investment Handbook 2018-2019”. In all good book stores now. Also Read Property Finance Made Simple and Property Investing Made Simple.
Many investors over the years have been drawn to negative gearing, yet it makes less sense why these people were. Of course they think they are saving a great deal of tax but let’s put this into perspective. According to the ATO, over 70% of investors that have a negatively geared property (a property not breaking even or not making positive cash flow) earn under 80k per annum. So their tax bracket is mid-range, not high, or the highest. So it is really foolish to spend a dollar just to save 32.5 cents and this is what all these people are doing that earn under 80k per annum.
There are three strategies for property investors;
Capital growth and cash flow strategies can be implemented in all three. The difference between the three of them is level of risk, time available to retirement, your tailored plan, comfort level, and many other influences.
- Buy and hold
This is perhaps the easiest of the three strategies. It is more suited to time poor investors that wish to be a little more conservative, or that lack the knowledge and expertise to risk undertaking one of the other two strategies. Buy and hold is what the majority of investors decide on.
Many still fail with this for innumerable reasons. Lack of knowledge and experience, poor research, not using an advisor, bad financial strategy, no plan, selling too early, buying at the wrong time in the wrong market, or buying the wrong property type in a good suburb.
- Flipping or holding by renovating
This requires a more hands-on approach or paying a premium to have someone renovate for you. The purchaser can manufacture more capital growth and cash flow independently of the market, so they’re not solely reliant on the market for the property’s performance. If too much emotion is involved and they over-capitalise, serious problems will arise. Having it vacant for an extended period while work is being carried out means being out of pocket for a period of time. Affordability could then be an issue, as it is more difficult to afford to have a property vacant for an extended period.
This includes construction of another dwelling or several dwellings on the block, and/or subdivision. This is the most risky, due to time and cost, but has potential for significantly more financial benefits from a cash flow and capital growth perspective. A feasibility study would be required to determine if the project will make enough money or will lose money. You will also need a good team around you. Refer to www.propertyinvestingmadesimple.com.au to get an idea of who would be needed in your team for this type of investment. Also stay tuned for my next book, ‘The 100k Property Plan’ where I go into significant detail on everything to do with small-scale developments.
With every plan there are also three stages
- An acquisition phase:
This is the period of time over which you acquire the required properties. It can be as short or long as is practical, but needs to suit your current situation and all the elements of what makes up your current situation discussed in chapter 1.
- The holding phase:
This is the period of time that you hold your properties. The longer this phase, with a buy and hold strategy, the more time the properties have to grow in value. Many property-marketing companies will tell you that property has doubled in value every 7-10 years and whilst this is true in many areas, what these people do wrong is imply that property will continue to double the next 7-10 years. They may not say it explicitly, but they often lead you to believe the chances of it are very high.
This I disagree with, the past is not a reliable indicator of the future. To be more reasonable with timeframes and in order to manage expectations, it is more reliable to allow 15 years, or even 20 years is better. Not everyone has this much time, and it is a sad fact of life that people leave it too late in life to take action for the betterment of their future. What can be done for people who are young enough, is to consider starting now if your current situation allows it. For those people who have left it late, they could also consider whether they should start now, to at least try and improve their situation, and seek advice at least.
The older someone becomes, the more conservative they should consider being. They have less time to try and mitigate any financial mistakes they make.