Many investors fail to understand that just like real estate, people go through different stages or cycles. We start out young and inexperienced, and as we get older our confidence and competence grows. Then we reach an age where we wish to enjoy the fruits of our labour without being burdened by working well into retirement age.
For some, retirement will unfortunately involve clocking into their day job for many years past their 65th birthday. But if you want to create a profitable portfolio of properties that allows you to retire on your own terms then it’s important to match your property decisions to your life-stage – a crucial step that many everyday investors don’t undertake. Instead, most people get their foot on the property ladder because it ‘seems like the right thing to do’. This style of investing is more like speculating and there’s no strategy involved. At the end of the day, yes, property can help you build your wealth and future security… but only if you invest wisely.
So in the spirit of helping you build your knowledge and invest wisely, here are three expert investment tips to help you on your way:
One of the most important concepts to understand about property investing is that it takes place in stages.
When you’re younger, you’re in the acquisition stage: this is where you should focus on growing your portfolio as aggressively as possible. As you get older, you’ll cool down on adding new properties to the mix and, instead, actively pay down your assets for a period of time while they grow in value. And as you reach your own retirement age – which may not be 65-70 in line with the government’s guidelines, but could be whatever age you desire – then you start crystalising your wealth by selling some assets, to own a mortgage-free portfolio.
Buying (or not buying) property according to your life stage is essential to your long-term success.
It’s shocking how many Australians will happily hand over hundreds of thousands of dollars to purchase property assets without giving much thought to what they want to achieve as an investor. They don’t consider the strategies they should use or their ultimate property goals and, as a result, they often don't hold the property long enough to enjoy any real profits from it.
You need to invest with purpose, every step of the way. Are you aiming to achieve a strong cash flow to help you pay off your personal home (non tax deductible) mortgage? Do you want to buy a ‘renovators delight’ to spruce up and make a profit? Or is your goal to buy and hold for 20 years?
Knowing your goals at the beginning is vital as it’s the only way you can ensure you buy a property that helps move you forward towards a prosperous future.
When you’re buying a property, do you assess its credentials based on the type of home you want to live in, or the type of home the suburb’s demographic desires?
I can remember looking at an apartment many years ago and I was instantly turned off as it had no internal laundry. The tenant would have to share a communal laundry with 11 other apartment residents, which I felt was too much to ask. Who wants to clean their clothes and bedding in the same washer as a bunch of strangers, I thought.
It wasn’t until I did further research into this suburb that I discovered communal laundries were par for the course. An internal laundry could actually add as much as $50 a week to the rental income, so it also meant I had the potential to add value to the investment if I installed a washing machine discreetly within the apartment.
This experience taught me a valuable lesson: that as a landlord, I have to review the property according to its audience, not according to my own needs.
The above three tips represent lessons that all investors can learn from, as they can save you from making costly and time consuming mistakes in your investment portfolio.