We’ve all enjoyed a good time in property over recent years and those who have been in the industry for a while will have learned and understand what`s ahead in the real estate world and display a more relaxed demeanour, but right now as this record-breaking real estate cycle matures, a net of doubt and uncertainty has been cast across a few real estate circles.
Doubts about the potential for future capital growth, uncertainty about the amount of inevitable interest rate rises.
The elementary fact is that there will always be forces working against us over which we have no control.
Politicians will keep making and changing policies, interest rates will continue to rise and fall and there will always be a global crisis somewhere in the world and none of these factors will have any compassion or consideration for your own personal plans.
If any or all of these changes’ “causes” a panic, a knee-jerk reaction from you then pack up your desk and go home- your fired!
Whilst these forces are certainly inconvenient, they are things that a smart investor will have planned for and positioned for constantly either themselves or with the help of their team property advisor. Consider these “forces” as just another brick in the wall and strategies should have been put in place to mitigate the changes to help you get over that brick wall.
So let’s look at six strategies that could help you reach your investment goals, irrespective of the external forces at play.
1. Invest in YOU – Build your knowledge BASE before you invest in the bricks and mortar
In my early days as a Buyers Agent and investment advisor I used to hear my mentor telling our clients daily “if you are the most learned person in your circle of influence, then change your circle of influence!”
Start investing in yourself.
Information = Knowledge
Knowledge = Power
However, there is an absolute whirlpool of information out there, it’s hard to know who to listen to and what is the truth of the information, because information, more often than not, is conflicting. I suggest you seek out and learn from others who are considered experts in their industry. Experts who have helped people achieve what you want to achieve and who’ve maintained their client’s wealth over a long period of time, not just during the last property cycle.
Be aware that some property industry practitioners have a habit of self-promotion and therefore create an illusion of being an “industry expert” by designing a good sparkly website but these experts have usually not served their time, generally considered to be a minimum of 10 years.
Invest in building your library of books from those that you trust. Go to seminars and surround yourself with like-minded people and get a mentor who will not only inspire and challenge you but hold you accountable for your actions.
2. Align your investment plans with your investment capital
I repeat there’s little doubt that interest rates will rise again causing capital growth to slow down. This means some investors who have, of late, bitten off more than they can chew will come unstuck because they’ve over-committed financially.
Sure, it’s exciting to have big dreams, but if the path to get you there is paved with gold that you simply can’t afford, then your dreams run the risk of becoming a problem.
Remember that all booms come to an end so while enjoying the current phase, make sure you’re financially prepared for what’s ahead. For a smart investor, CONSOLIDATION comes after a boom.
3. Leverage your portfolio to manage your risk
Experienced investors not only look forward to the best of times but also protect their portfolios ready for the tough times that will inevitably come along.
They monitor their LVR and don’t “gear” themselves to the max.
They protect “time” by building a cash buffer into the piggy bank to buy themselves “time” when they encounter the turbulent waters. They ride through the storm.
These buffers are often lines of credit or offset accounts, which they can call upon should the unexpected event occur as a loss of employment, a prolonged illness, an unforeseen repair or an extended vacancy period in their rental property and of course to prop up the investment during tightened yield times.
Significantly though, they also own the type of property that will be in continuous strong demand. They would have acquired a property in a suburb that appeals to a wide demographic of owner-occupiers, because these locations are underpinned by multiple pillars of wealth and therefore ensuring that these values don’t fluctuate widely when times become tough. Experienced Investors will always keep on top of the value of their property and when situation allows, extract equity to top up the buffer.
4. Do the due diligence before you do the deal
While the average investor usually follows the crowd & buys their properties emotionally whereas, sophisticated investors have a structured investment plan that their advisor helps them adhere to. Any potential investment opportunity is carefully evaluated against their long-term goals. They know that this makes their investment decisions less emotional and their results are more consistent and predictable.
5. Keep your finger on your portfolio pulse
While average investors buy a property, hold it for the short-term gain and then sell, strategic investors regularly review their investment portfolio’s performance and by evaluating how their properties will perform if interest rates rise one or two per cent they can then make smart decisions armed with the correct knowledge.
I like to look at my clients’ portfolio’s performance at least once a year:
- Are the properties performing to our expectations?
- Are they outperforming the market?
- If that property were for sale today, would I buy it again?
- Does this property still fit in with their overall plan?
Don’t be afraid to cull the properties that are not performing as expected. Treat your property like a business and evaluate your assets dispassionately and take appropriate action.
6. Remember that in real estate, less is often more
Contrary to what you might believe, owning heaps of properties does not necessarily mean you will have financial freedom later in life. The person who wins in the end is not the one with the most properties. Concentrate on getting the best deals for your investment goals, not the most deals.
When it comes down to it, capital growth is key in building wealth through real estate and properties that outperform the long-term averages always come at a price. The trick is to avoid cheap or secondary properties.
You make your money when you buy your property, not by purchasing a cheap property, but by buying the right property.
Hopefully your investment journey will be a long one however this means you’re likely to encounter some good economic times and some tough ones, periods of low interest rates and high interest rates, booms in the property markets and slumps. Remember to prepare for the worst, while hoping for the best – in other words maximise your upside while at the same time covering your downside and you’ll remain in control of your destiny and stay on top of the ladder.