The objective is to create and manage a healthy non speculative property investment portfolio which is able to provide for your lifestyle in the future. To achieve financial freedom or financial security by using property investments as the preferred wealth creation vehicle.
The Start
Most people fail to achieve a certain level of financial success in their lives because they never start. They fail to do something about it. Whatever the reasons may have been so far of for not starting, that should all be kept behind and a fresh attempt should be made as to finding out how to start or to start? To do something, to take control, that’s should be the attitude.
Most people don’t start because of fear, lack of knowledge or laziness. When you establish that there is certainly a need for you achieve financial security, that element, that drive with education can remedy all the three, fear, lack of knowledge and laziness.
I remember a conversation with a gentlemen and it went along the lines of this “I migrated to Australia in 1986 and in 87 I had an opportunity to purchase a 3 bedroom townhouse in Hawthorn for $180K and I had the means to purchase but then I thought nah who would want a townhouse in Hawthorn nah, then again in 97 I almost purchased a 2 bedroom apartment in Richmond for $230K, I was close but then I thought nah who you’d want an apartment in Richmond nah. He was not able to find that special property he was looking for till that day in 2007, now he was quite flustered that the Townhouse he saw in 87 went for over $800K in an Auction recently and how it is too hard now”.
Start, start somewhere, starting to do some thing about it is by far the most important part in this whole wealth building plan.
Starting as soon as you’re working career begins is ideal or otherwise make endeavor to start as soon as it is possible.
Starting to do something will give you the confidence which will be apparent and it will help you define your goals, it will create discipline, it will improve your knowledge and it will give you options in the future.
So start, plan and take action to execute it.
We can help you start.
The Plan
A careful, conservative and correct long term property investment plan should be prepared taking in consideration of all of the individuals financial and personal circumstances.
You plan will allow you to look at the bigger picture. The mind is a commanding might and mental picture can help turn goals into reality.
The plan must have the right attitude about it; it must provide a blueprint, a guide and the plan must be followed stringently.
The plan should have the objectives of the investments explained clearly.
The plan should be a safe plan and it should consist of only non speculative property investments.
The plan should be based on facts and figures merely; it should be commercially feasible; it must stack up in numbers.
The plan must also be simple.
If quality time is spent on planning and structuring the whole property investment portfolio at the beginning, from there on its more of implementation than anything else, there may slight variations along the way but the core of it remains the same.
Most investors turn to financial planners or financial advisors for property investment planning and get served with a dose of financial planning, securities, equities, managed funds, superannuation, insurance, growth assets, units, trusts, syndicates etc everything else but direct property investing. Accountants can do their tax but property investment planning is not their trade, they can tell you the tax benefits of it but to list real estate or to advice on real estate, they are not licensed, as estate agents to do so.
We can help you prepare a property investment plan if you are starting out or if you are an active investor already we can help you to consolidate your existing investment properties in a plan to add further value to the portfolio.
Options, Other than Property
Property, Equities or Cash.
Equities, shares, managed funds etc are growth assets like property but are more volatile. You may have the prospect of better short term gains with the risk factor attached to it that you may loose more as well.
Cash is for reserve purposes and flexibility reasons. Cash doesn’t grow in itself and it doesn’t protect itself from the detrimental effects of inflation.
We are property centric, our confidence and passion for property as a preferred wealth creation vehicle over the long term remains strong, as compared with other forms of investments such as shares and managed funds etc the rates of return on your money is similar to that of property investments however, the risk factor attached to it is lower. Whereas equities (Shares etc) fluctuate on speculation therefore exposing you to more danger, residential housing market remains stable and steady, less volatile.
*For shares, the annual gross return between 1980 and 2000, based on the All Ordinaries Index (Source: ASX) was 13.2 %. Based on the Residential Investment Property Index (Source: REIA) for the 6 major capital cities over the same period, for property it was 15.6%
*The ability to borrow is higher in property investing then share investing. Property can be geared with Loan to Value Ratios (LVRs) of upto 80%, while shares safely can only be geared to 50%, therefore lenders also preferring to lend more on investments where property is used as security. On the other hand if you borrow money to invest in shares, you run the risk of a margin call, usually requiring you to sell shares in a down market to reduce the LVR to a limit acceptable to the lender. You can gear or borrow against residential property to a much higher level because of the lower risk, ensuring you a huge leverage advantage that ultimately increases your returns and your wealth.
*Direct property investing gives you a complete control over all aspects of your investments in comparison to share investing where you are at the whim and mercy of the directors of the company. Small investors have a very little say in the destiny of a company and control usually lies with larger institutions. When you buy residential investment property, the ultimate control of your wealth building plan lies with you. You can choose your extent of involvement and do as much or as little as you like.
*Investing in median-priced residential property for the long term may not be exciting, but it is relatively safe and rewarding.
Time
*Building wealth is achieved through borrowing, buying and keeping residential property for the long term. It requires time – not timing.
If you endeavor and that your circumstances allow you to buy invest for the long term, you will see enormous benefits from property investments, like I’d mentioned an incident before in The Start section, if that person at the time in 1986 had invested in that 3br Townhouse in Hawthorn at $180K, held it for the long term, geared it correctly acquiring more properties in likes of that 2 br apartment in Richmond, by now in 2009, over 23 years that is, he would have amassed an fortune and ready to consider part time consultancy or semi retirement, well and truly into his financial freedom and financial independence zone, just having the confidence of that feeling that things of doing fine, its under control and things are getting taken care of.
Time keeps passing by, unnoticed, relentlessly, utilize it towards your advantage, in terms of property investments use time for your advantage by trying to get in the market as soon as possible with a long term view of planning and servicing the investments correctly and holding on to them for long term.
Using the equity which is continuously building up with time and carefully gearing it further to acquire more investment properties, again with time; will lead to a healthy non speculative property investment portfolio on which you can retire comfortably.
Often there is a pursuit amongst novice investors to time the market, they want to get in the “right time” or wait till the “right time” comes and they will know then weather it is the “right time” then. There is no need of trying to time the market; it is the “right time” to enter the market whenever you are possibly ready.
*Capital growth for residential property in major capital cities has averaged 7.8% per year for the last 20 years; it is not a constant growth rate each and every year. While property values do not experience the extreme ups and downs of the share market, there are times when they stagnate, and times when they surge, creating cycles, for a long term property investors, time soothes out these fluctuations.
How long in terms of time is the question which can be differentiated between a property investor against a property trader, speculator or developer, as per our property investment philosophies we recommend our property investors to have a time mind set of 10, 20, 30 years, never sell there is no need to. *The whole reason of investing is to have future wealth and security. Then, when your property has grown in value and the rent has outstripped your interest payments, you should be receiving a great income from your tenants.
*Buying property to keep is a whole new way of thinking. Yet when people talk about superannuation they immediately think in phrases like retirement package, future security, income assurance, nest egg and a time frame of 30 years or more. it is time to use these terms too when talking about property because property can be the best form of ‘superannuation’, the best ‘pension fund’ and the best ‘insurance fund’ you will ever have.
*All comes at the proper time to him who knows how to wait.
The Strategy
The goals and objectives must be clearly defined before you begin with it.
It is important to decide when you would like to retire and what other benefits you want to achieve out of your property investment planning and then work out accordingly the assets that you will need to give you that income you require for financial freedom and financial security.
*When you retire, rents become your main source of income. Manipulate the debt levels by selling one or more properties to reduce the loan so that you now have a positive cash flow. Buy any luxuries you want, enjoy your retirement and celebrate living longer comfortably with champagne.
Finance
Correct loan structuring is almost as important as choosing the right investment property.
With the most banks and other financial institutions providing a large range of property investment financing options it is more likely that you will be able to find a solution suiting your circumstances the most. There is a range of products available in the market from straight forward fixed rate loans to more complex and flexible, variable and split loans.
In general on investment properties interest only loan is favored as you can claim the interest as deductions whereas, owner occupiers should favor principle and interest loans on their principle place of residence and try to pay it off as soon as possible. Investors should carefully look at the degree of flexibility attached to the finance
When ascertaining your borrowing capacity the lenders usually look for three main things from the applicant its status, security and serviceability
Ideally it is suggested that you liaise with a experienced mortgage broker to ascertain your financial circumstances, explain to them your objectives and goals related to the pursuit of this financing, how your tax is relevant etc and generally the mortgage brokers can come up with appropriate solutions.
Our company has associations with reputed financiers from the mortgage broking industry, which our clients can choose from.
Tax
Property investment strategy should compliment the investor’s tax planning that should be the objective. Weather to negatively gear or positively should rely on each individuals personal and financial circumstances.
Comprehensive information regarding investment properties and tax can be obtained from the Australian Tax Office (ATO) and other qualified tax practitioners. Resources such as Rental properties, Capital Gains Tax and Guide to depreciation have useful and relevant information.
Our associations with experienced accounting practices can help our clients to get expert advice on effective tax planning and structuring.
Maintaining the assets
Building wealth through residential property means not only following the right principles, but also preparing for all that might happen before it happens, A Financial management plan should prepared, you should know manage large amounts of money flowing in and out of bank accounts. Managing your portfolio needs a business like approach. Develop the mindset with which you can manage and master your finances and protect your wealth building plan
- Prepare a budget
- Fix the interest rate
- Take interest only loans
- Set up a credit line
- Reduce tax instalments
- Aim for a reasonable LVR
- Don’t count on unreliable income
- Don’t speculate
- Look into rent insurance
- Check out mortgage repayment insurance
- Consider income replacement insurance
- Take out term life and disability insurance
- Invest in health insurance
- Get property insurance
- Avoid external partnerships
- Make a will
- Gain more knowledge
- Don’t get too greedy
Building wealth through residential property gives you complete control over the management of your investment – but don’t confuse management with involvement. Unfortunately, some investors feel that they must be actively involved in everything that happens to their property. You don’t have to be personally responsible for every little incident. Do-it-yourself investment in residential property does not mean do it all yourself. The returns from property can be so good that you can afford to pay a specialist to do the maintenance and management, yet still achieve great results. It is a matter of putting a value on your own time. Whether you use a professional manager or not, you should consider the following points to maximize your returns and minimise the fuss
- Keep an eye on maintenance
- Distinguish between maintenance and improvements
- Screen your tenants
- Set a reasonable rent
- Prepare a sound lease
- Follow up quickly on arrears
- Prepare ahead for change of tenants
- Minimise the vacancy rate
- Make sure you have a bond
- Keep a business relationship with the tenants
- Do regular inspections
- Seek professional property management
In general have a positive, professional and business like approach and that will help you create and manage a successful property investment portfolio.
We have in this section referred to extracts from a very good book written by Jan Somers called More Wealth from Residential Property, it’s an excellent publication and we recommend it to everyone to read it, whether you are investing in property for the first time or whether you are an experienced investor.
