Before you buy a property you need a property strategy. Most property experts will provide a complimentary one. Read our checklist below to make sure you are on the right track before you run out and buy a new property. If you don't it could cost you millions.
1. Just because it worked for them doesn't mean it will work for you.
The media is full of success stories of people who have built million dollar property portfolios in a relative short amount of time.
I am the first to congratulate someone for being successful but remember their success may be the result of market conditions that no longer exist and personal circumstances that are not the same as yours. Everyone makes money when the market has gone up 50-70% over a 5 year period but that doesn't make you an expert until you have been through a couple of property cycles and learnt a few lessons.
Following their path WILL provide you with completely different results.
2. The number of properties you buy is irrelevant to your financial outcome.
Ten properties in 10 years, the four property strategy, the two property strategy,...These aren't strategies just marketing hype. Some people are even calling them formulas like its a new law of money they have discovered - WTF.
Its the amount of equity in your properties and your cashflow after you pay for all your expenses including interest on any loans that are relevant. This is what allows you to retire.
3. Is your property strategy personalised to take into account all your circumstances.
Your personal property strategy should take into account your own financial circumstances, what you are trying to achieve and in what timeframe. It shouldn't be one size fits all commonly taught at 1 and 2 day events.
Important factors to consider are your level of experience and available time.
Current position + Strategy = Defined financial outcome
4. Is it possible or practical to buy the kind of properties required specified in your property strategy.
There are many property strategies being taught to property investors but they often fall short with finding ACTUAL deals (that you can buy now) that are defined in the strategy. Repeat offenders are renovations, subdivisions and small developments. They teach you how to do it so that you can create regular property equity but when it comes to actually finding the deals you are on your own. I speak to lots of first time property investors that are not interested in boring capital growth properties. They have done a property course and have decided to do a renovation and want me to find them a deal like the ones they were shown as previous success stories.
Discount deals are also hard to find. If you can buy below valuation then you would be doing well in any market. Why would someone sell below the market value of their property? You will often find that the price you pay is the market valuation. Finding deals that are really below market valuation takes a lot of time and requires strong local market knowledge.
5. Is your property strategy realistic in terms of capital growth and cashflow.
The level of capital growth you achieve to create equity in your property over time can have a huge effect on when you can retire. Not all locations and property types grow in value the same but remember that the location alone will account for 60% of your property's capital growth so choose wisely.
Remember that your property will not grow the same amount every year and will fluctuate with each property cycle and is largely driven by owner occupiers.
Property cashflow is largely dependent on the the amount of rent you can charge so ensure you buy a property that is always in strong demand with tenants.
Remember that rents grow faster when capital growth slows and are largely driven by property investors looking to increase their returns.
6. Consider the tax implications of a property strategy that involves selling properties at a later date.
A common strategy is to buy capital growth properties now (accumulation phase), let them grow over time (growth phase). The last phase (retirement phase) is where it gets interesting. I have heard many ideas here and most involve selling some of your properties (or all) and buying properties with higher cashflow so you can live off the income and meet your retirement goals. Nice tax bill thank you! Other strategies involve selling some of your properties to pay down the debt on your remaining properties so you can live off the higher debt free cashflow generated from your properties. Nice tax bill again.
Given you have held these properties for a while you will most likely pay 50% of the normal capital gains however this still represents a large tax bill close to your retirement. There are better ways.
CONCLUSION
No matter what your strategy you need to build wealth through property investment and there are two important facts you must remember:
1. Australian residential property has a long history of strong capital growth
2. Residential property is not a high yielding investment
Any reputable property strategy therefore should have capital growth as its basis to build wealth for your retirement. The creative part of any property strategy is to deliver the income needed in requirement in the most efficient way.
If you want to know more about property strategies, then please feel free to contact us.
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