Let’s not be under any illusion all forms of investing whether it’s shares, business or property have an element of risk. If not everyone would be doing it! So it’s important that whatever vehicle you use you look at ways in which you can reduce or mitigate these as best possible. Below are 5 things that we encourage our clients to consider prior to purchasing their next investment property.
1. Create a strong foundation.
It’s important prior to purchasing any investment property you educate and get as much knowledge as you can. In the world we live in we have access at the tip of our fingers via electronic devices to get all the information on any subject. We encourage our clients to educate themselves through, books, podcasts, seminars and talking to experts to grow your knowledge base.
You also need to speak to professionals such as your property accountant and broker to ensure that you are buy ready. This would include having the correct purchasing entity as well as know your borrowing capacity.
2. Budget and Savings
For some people this may sound strange, but it’s vitally important that you budget and live within your means. It’s also important that you have savings that are put aside to assist you with not only your property purchase, but also as a buffer if things don’t go to plan. For example if your property takes longer to sell then anticipated or if your personal situation changes. By having a buffer it eliminates you making emotional decisions in a rush because you don’t have any reserves.
3. Don’t get emotional!
This is a tricky one, as humans we are emotional beings and thus emotions rule our world. However in the investing world emotions can cause people to make decisions based on their heart and not necessarily sound calculated choices. An investment is just that and you are purchasing a property due to it’s potential to make a profit or generate cash flow. It doesn’t matter if it’s not the prettiest, biggest property. All decisions should be based on the numbers it generates.
4. Surround yourself with Like- minded people
They say your net-worth is in direct relationship with your net-work. Be selective with who you spend your most important asset “your time” with. You want to be spending time with others who will support you and encourage you. It’s always more fun too if these people have a common interest in your passions, in this way you can create a support network that you can tap into to ensure you get advice and assistance if needed. We encourage all our clients to create their own dream team of experts in all areas of property investing and network with these people as often as possible.
5. Manufacture your Growth
Anyone can suggest an area that may potentially increase in value and how many people do you know who can benefit from this? If they do get any price rises due to market increase it is generally eroded through the purchase costs eg- stamp duty, transfer fees, holding costs and a selling agents fee. One of the main reasons I have selected property as my vehicle to create wealth and cash flow is due to the control you can have. In other words you are not being a speculator and speculating where and why the market is going to move. If you want to be a speculator you are better off to go to the casino!
By applying or manufacturing growth through strategies such as renovations, building and or subdividing you have control over the profits you make in any market.