In property investment, even the most feasible investment selection can sometimes turn awry, so a strategic plan of attack is essential
Blogger: Phillip Tarrant, editor, Smart Property Investment
It’s easy to get caught up in the excitement of real estate that promises massive growth and tantalizing returns.
You only have to look at the prosperous, resource-rich locations across the country, where investors are licking their chops at the thought of the very sizeable profits up for grabs through strategic investment purchases.
Indeed, investor real estate remains ripe for the picking in many locations, with a booming mining and resources sector, tight vacancy rates and a growing population, together ensuring an abundance of opportunity.
The icing on the cake is, of course, lower borrowing costs. By June, the official cash rate had already lost 75 basis points this year and both banks and non-bank lenders were reducing their mortgage interest rates in response.
Betting on these developments could certainly see you secure some positive returns, but to truly safeguard your profits you’ll require a carefully implemented game plan.
Consider this month’s story on ‘Navigating the minefield’ of resources-driven investment markets. Outstanding capital growth potential and high rental yields are there to be had in mining towns, but there is also considerable risk involved and that needs to be taken into account.
Have you thought ahead and planned the best time for your investment? Or what your plan of attack would be should the local industry disintegrate?
Obviously, investing in a mining town involves a greater degree of risk than many other investment choices. But that should not overshadow the fact that any investment selection requires due diligence – risk is not unique to investment in mining towns. It’s more a matter of degree.
Take a luxury apartment in the centre of town, for example. It might seem like a watertight investment. But what happens should a high-rise pop up next door, reducing your harbour view to a concrete wall? That could seriously impact the future sale price of your property.
Ask any investment specialist and they will all tell you the same thing: strategic investment is the best investment. That means a careful, thoughtful, well-planned and well-executed purchase.
The strategic investor is not easily swayed by hype or the ‘promise’ of returns and will consider external factors that can affect their investment.
If reduced borrowing costs have caught your eye and you decide a new property fits your budget, what is your plan of attack should those borrowing costs rise?
In the case of mining towns, the questions you’ll need to consider will include: Are there multiple industries underpinning the growth of the local economy? Does demand for rental accommodation exceed development? Are there any plans to release land packages in the near future? What happens if a mining company collapses or workers go on strike?
Any of these events could dramatically impact the value of your investment.
A true due diligence process will include a list of all such ‘what if’ factors and a list of potential scenarios that could play out, whether you like the sound of them or not.
Only once you’ve addressed all potential developments in light of the degree of risk involved, as well as your tolerance for these risks, should you make your investment decision.
In addition, your investment strategy should include a contingency plan for each scenario – however unlikely it is to come about.
Finally, you’ll need to consider how your property purchase fits in with your financial goals overall.
Only by doing this can you ensure you choose the property that has the best chance of meeting your investment goals and ensure your holding and selling plans are on the right track.
About Phillip Tarrant
Phillip is a media professional as well as an active property investor. He has over 10 years’ experience reporting on the mortgage and property markets and has worked extensively with Australia’s leading mortgage lenders and brokers as a corporate communications and public relations consultant. As a property investor Phillip advocates the principals of research, due diligence and surrounding yourself with the right team to make informed and educated property investment decisions. As well as being editor of Smart Property Investment, Phillip sits on the Board of the Property Investment Professionals of Australia (PIPA), the peak industry body for the property investment industry. He also sits on the Board of Publishers Australia, which represents best practice, innovation and professionalism in publishing. These two positions offer Phillip insights and awareness to the latest issues, activities, techniques and best practice principals across both industry sectors and ensure Smart Property Investment remains focused on delivering quality content to its readers.