How to buy investment property which outperforms the market
It’s very easy for consumers to get excited about purchasing property as part of their investment and wealth creation mix.
While the property sector would have you think that property investing is easy or simple and anyone can do it, the evidence suggests that not everyone does it well, let alone successfully.
Here is how to buy investment property:
- Free advice isn’t good advice
- Know your personal risk profile
- Document a property investment strategy
- Engage a team of experts
- Conduct independent property research
- Develop skills in property selection, assessment and negotiation
- Review property portfolio regularly
Unlike managed funds, shares and other asset types that are governed by regulations and overseen by ASIC, the property sector is totally unregulated and sharks abound in the murky real estate waters, waiting to pounce on unsuspecting investors at every opportunity.
The property industry is guilty of dumbing down what is in fact a complex process – investing in property. Selling agents, project markets, property spruikers and developers offer education, one stop shops, integrated programs and all sorts of tricky strategies to sell what is frequently poor performing investment property, and they do this for their own and their vendors benefit.
Property is an asset class. Like any other asset class, it shouldn’t be bought based on emotional appeal, hype, ‘edutainment’ or the spiel provided by a selling agent, which is always general and totally biased in favour of the vendor.
Have you ever attended investment seminars and been sold some amazing property opportunity/strategy for wealth creation, or bought from agents, project marketers and property spruikers, only to have your property valuation come in under the purchase price at a settlement?
Or worse, you bought years ago and in the hope of continuing to invest, you seek to access equity in your property, only to find out during the course of it being valued that it hasn’t grown in value at all or it now has negative equity?
This doesn’t bode well for investors and it also doesn’t bode well for lenders who want to help investors keep growing their portfolio. In some cases where third party advisors (such as accountants, financial planners and mortgage brokers) refer clients to these project marketers and spruikers to make ‘healthy’ referral commissions, the consequence for the investors can be devastating. The referrer can unknowingly burn their client in the process and limit their ability to grow their portfolio down the track.
There are numerous reasons for this, but let’s start with the basics required to enable investors to buy property that will outperform the market.
Here is how to buy investment property:
1. Free advice isn’t good advice
Free advice isn’t good advice. It’s important to differentiate between fee for service unbiased and independent advice, versus free advice that is biased and doesn’t represent the buyers best interests
2. Know your personal risk profile
Investors need to know and understand their personal risk profile and that of the property they are considering purchasing, to ensure the two are compatible.
3. Document a property investment strategy
Investors need to develop a documented property investment strategy to encompass their risk profile and medium to longer term goals.
4. Engage a team of experts
Engaging a team of experts at each step along the investment journey, including the services of a savvy mortgage broker, will reduce risk while accessing expertise in what is in fact a complex process
5. Conduct independent property research
Substantial independent property research is needed to ensure they are buying a property where the growth drivers indicate the greatest opportunity for capital growth
6. Develop skills in property selection, assessment and negotiation
Each step of the selection, assessment and negotiating process can make or lose an investor thousands of dollars, so skills need to be honed in these areas
7. Review property portfolio regularly
Once a property is purchased, it needs to be reviewed and assessed annually to ensure it is achieving the required level of performance to fulfil the investor’s strategy. It’s not wise to buy on a ‘set and forget’ basis and then hope it works out.
By understanding and implementing these steps, investors have the greatest chance possible of mitigating risk and investing successfully and in property that will outperform the market over time.
I will expand on these steps in more detail over the next few weeks.
Until then, go forth and prosper!
Some of the article content is extracted from the book Property Prosperity – 7 Steps to Buying Like an Expert by Miriam Sandkuhler © 2013, with the author’s permission