How to be an Astute Property Investor
People investing in real estate fall into two main categories: amateurs pretending to be professionals and astute investors.
An amateur investor has lots of knowledge gained from attending seminars and reading numerous books, is brimming in self-confidence, but doesn’t have any real experience to the cut and thrust of the real estate world. They believe that all purchases will be a significant success and are pumped up to buy immediately. They believe that significant gains can be made as easily as they have been in the past and think that what worked yesterday will work tomorrow too. They are unaware of any risk and reward profile and become heavily involved in borrowings and gearing and usually end up overcommitting themselves.
The astute investor is a totally different buyer. They are aware that timing is critical in investment buying and are always striving to create a well-balanced property portfolio. They are in it for the long haul and are well aware of the risks of higher returns. They have already planned an exit strategy and know what property they need to buy in order to secure a good long-term tenant. They have a defined property management strategy and usually already have a good working relationship with a professional property manager. Traditionally they are conservative and will always have a buffer to cover unexpected expenditure that might be needed on the property or an unexpected and dramatic change in market conditions. They are patient, can see hidden value and are prepared to develop their portfolio intelligently, without running the risk of overcapitalisation.
The astute property investor
- Is patient and does their own homework.
- Knows that prices will fluctuate.
- Has a good feel for capital growth areas.
- Takes into account that markets can overreact to issues instantly.
- Is quick to grasp opportunities that are sometimes well disguised.
- Is aware that higher returns mean more volatility.
- Holds property over a period of time to mitigate any risk.
- Understands the cash flow and gearing required and keeps a little aside to cover any hiccups.
- Doesn’t change direction.
- Rarely buys off the plan.
- Is cautious in buying commercial and development properties. Understands that tenant and council issues can be time-consuming.
- Never appears to be in a hurry.
- Will walk away if the property doesn’t meet their model.