While it’s true that people looking into starting a property investment journey must learn a few things before jumping into the markets and purchasing assets, many experts and professionals believe that one can find success in the field simply by remembering the fundamentals.
Smart Property Investment’s Phil Tarrant and Yellow Brick Road’s Mark Bouris agree that investors tend to overcomplicate many aspects of property investment and get overwhelmed by all the information that they end up procrastinating or ultimately making the wrong decisions.
“Investing in properties is not hard. There’s a lot of moving parts that you’ve got to get right, but it’s not hard. Why do you invest in property? You invest in property – it’s wealth creation, mainly. So, you buy property ‘cause you want the thing to go up in value, and you want, essentially, the rent to underwrite the cost of the mortgage and other costs as much as possible. It’s pretty simple,” Phil said.
All the confusion can be avoided if property investors listen only to trusted field experts and professionals who are working with them towards achieving their personal and financial goals, not to friends or acquaintances on the streets or at dinner parties.
According to Phil: “A lot of people make it very, very complicated. A lot of people that I speak to in property investment, they get so engrossed in all the information that they never ever make a decision. Cut all the noise out, cut all the bullshit out of it, and just get on with doing it. Because the best thing you can do in property investing is, sometimes, just to get started.”
“That’s what Nike says, ‘Just do it’. I would say to somebody, just keep it nice and simple,” Mark added.
Some of the fundamental guidelines of buying a property, according to Mark, are as follows:
1. Put negative gearing aside
“Negative gearing is a tax deduction of the difference between the rent you pay and the interest you pay. In other words, the interest is higher than the rent. The reason you get a tax deduction is because you’re losing money, so that’s not why you’re going to invest in property if you can avoid it in the first place. Let’s not think we should be buying property for negative gearing purposes. I want to put it clear, on the table, put aside the concept of negative gearing. If you somehow can manage it, great, but if you’re losing money, it’s no good,” Mark explained.
Property investors should look into buying properties which has yield or a return after all the deductions.
2. Look for the area which will deliver a rent relative to the purchase price
According to Mark, it’s ideal to invest in properties close to schools, transport, parks, shops and restaurants.
“People will pay more for lifestyle. Put it the other way – don’t go getting a property that’s so far away from everything that no one wants to live there, because you’re not going to get your return and no one’s going to want to buy it,” he said.
3. Don't borrow “to the max”
Try to buy something you can afford and avoid putting too much pressure on yourself to build a massive, complex portfolio in a short amount of time.
Mark advised: “Don’t stuff around. Do one, and then as it starts to wash its face, and as you start to make a little bit of money, ride the momentum of property price rises. Property prices rise, generally speaking, in this country, particularly in the major cities – Sydney, Melbourne, Brisbane – every year. So, where your equity is, is in the property price rises.”
4. Use your mortgage and property as a tool to build your portfolio
Strategy is one of the most important things that help investors find success in their journey no matter the hurdles that they come to face.
Mark suggested that investors must learn to use their mortgage and their properties as tools to build, maintain and improve their portfolios.
He explained: “Start to build some equity in your mortgage, not the property, but equity in your mortgage. In other words, pay more off, if you can. Now, that equity in your mortgage allows you to have a redraw, every product these days has got a redraw, and when you get to a point where you’ve actually forced yourself to save some more, you might want to redraw the money and invest in another property.”
“Or, alternatively, you might want to repay that debt out completely, and reborrow up to 80 per cent of the new value of the property, because it’s increased in value. You’ve got to start to use your mortgage as a tool, and use your property as a tool, to build your portfolio,” Mark added.
5. Get some good advice
While it’s always recommended that property investors continue educating themselves throughout their journey, it also helps to seek guidance from experts and professionals in the field.
According to Phil: “I built a really nice property portfolio and I don’t claim that’s because of my brilliance, I’m just smart enough to actually use very bright people to tell me what to do. I’ve got a really good accountant, I use a buyer’s agent, I’ve got a really good mortgage broker. They’ve helped mentor me on understanding how you can create wealth through property. I turn to them for pretty much every decision.”
Property investment could be really nice and simple for most people as long as they have their goals in their mind and their plans and strategies laid out.
Investing in real estate is a personal journey for each and every investor, and the best guidance can only come from those who have an expert’s knowledge and experience in the field.
“Our experience is, when (investors) are seeking advice ... the stuff they’re asking is so complex, it’s based on a whole lot of stuff they’re reading, and they don’t know what they’re doing. They’re trying to build something like Warren Buffet would be freaking out at. They don’t try to keep it simple,” Mark said.
He concluded: “We’re just actually trying to bring people back to the beginning, back to the fundamentals, back to the simple stuff. Just buy an investment, get it cash flow positive. You learn about the mortgage, you learn about how you can get someone to find the property for you, you learn how to manage it. Then go and do another one, and then do another one.”
Tune in to Mark Bouris’ episode in The Smart Property Investment Show to know more about his secrets to success in property and how you can cut through the noise and doom and gloom to build a strong portfolio regardless of market conditions.