The big reason why you’ll never succeed as an investor
Here is an interesting fact: did you know that most property investors fail dismally when it comes to using real estate to build wealth?
According to The Conversation, 83 per cent of Australian property investors are small players who own just one or two dwellings. The average landlord is not the rich, greedy, monocle-wearing mega-rich mogul you might have imagined.
But with real estate offering a safe and proven opportunity to make money, why is it that most investors fail to build a successful property empire?
The answer is actually pretty simple - these would-be investing superstars stumble at the first hurdle, because they don't seek the right help and advice.
They think they can take care of everything themselves - after all, how hard could it be? They have read the property blogs, maybe subscribed to a few newsletters. And let's not forget Uncle Dean, who has kindly imparted his words of wisdom on how they should approach property investing at their last family BBQ...
How to invest in property for profit
The number one reason why property investors fail is because they don't get adequate or accurate advice.
In reality, becoming a successful property investor relies on a lot more expertise than what dear old Uncle Dean has to say on the topic. It's a business and should be approached using your head, not your heart.
You are more likely to have success if you are being guided by experienced, qualified experts who are in the business of helping other investors to profit from property every day, right?
So, how can you make sure you are in the slim percentage of Aussies who build a healthy financial empire out of real estate?
The first step is to nail your financial strategy. Whether that is positive or negative gearing, using the equity in your home to fund an investment or partnering up with a friend or family member to pool your funds and buy a property together, you must have a clear idea of what you want to achieve and how you want to get there.
The good news is you don't have to figure this out all on your own. By engaging the services of an accredited and experienced property advisor, you can get help in creating a plan that suits your income, budget, risk profile and future goals. This may require a small investment upfront, but when you consider the long-term outcome of financial wealth and prosperity, it is a small price to pay.
Nailing your finance and property strategy
Getting the financial fundamentals right also means working with an experienced mortgage broker. With access to a myriad of lenders, along with lesser-known products and tips and tricks to help the self-employed and those in unique situations an experienced broker can help you access the most suitable loan products on the market.
Once you have financial ducks in a row in terms of your strategy and your finance, and you know what you can afford to borrow, you can move on to finding the perfect investment property.
Many first-time investors simply look for an inexpensive property that can be cheaply jazzed-up to attract tenants - one that is close enough to schools and public transport and seems to appeal to tenants. Unfortunately, not doing enough homework here can really cost you a lot of money.
The smarter option is to seek the guidance of a reputable buyer's agent. They know how to identify true investment-grade properties that will deliver on capital growth and rental returns. They understand vacancy rate trends, know which type of properties are likely to be popular in different areas, and can forecast how future population growth and infastructure spending could impact values and rents.
They also know when you should offer an extra $10-20,000 for the ideal property - and when you should put your auction paddle away and continue the search.
And, a really good buyer's agent should be able to help you plan out your long-term property investing strategy, taking into the account things like how long you plan on holding the property for, and if it's going to be a suitable candidate for renovating, subdividing or developing.
Consider this hypothetical: Marc is a typical representation of a homebuyer who wants to use property as a wealth-creation tool.
Around 8 years ago, he had the opportunity to invest in a three-bedroom family home in Melton, Victoria, in an area popular with renters, for just $300,000.
Lucky for him, he spoke to a buyer's agent who recommended a smaller townhouse in the suburb of Vermont instead. This property was $150,000 more, so he paid $450k. However, it attracted a much higher rental return, thanks to the area and its proximity to a popular high school.
Since then, house prices in Melton have risen to a median of $385,000 - but in Vermont, that townhouse is now valued at almost $700,000. Marc has been able to access that equity to grow his portfolio to include two additional properties and set himself up for a comfortable retirement. Imagine how much he'd be kicking right now if he hadn't engaged appropriate experts to help put him on this path?
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation or needs before making any decisions based on this information.
Comparison Rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This Comparison Rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different Comparison Rate. Fees and Charges Apply. Terms and Conditions are available on request.