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There are different investment strategies that can suit different investors for vastly different purposes. Victor Kumar shares his top five investment dealmakers to improve the odds of any investment success.
Some investors need cash flow properties at a certain point in their life, while others are looking for solid capital growth prospects.
Of course, over the years of your property investment journey, your needs may change as your life changes.
Yet, when it comes to improving your chances of investment success, there are some things that never change.
Here are my top five investment dealmakers:
Things will sometimes go wrong, especially in a bad market.
So, you must be confident that you’d be able to offload the property regardless of what the market is doing.
You may have to discount the property slightly, but it’s vital that you’re not stuck in a mining town, for example, where no one wants to buy anymore.
To ensure liquidity you should look for properties in locations that have three or more big brand name real estate agencies that are trading within 10 to 15 minutes’ driving distance.
That’s because these franchises have been established in those areas after significant market research about the market’s future performance.
These franchises in turn have a number of salespeople who need to make a living by selling property, so that is a sign of liquidity in that market; that rules out buying in smaller regional locations because they can be seasonal, which means you may not be able to offload a property in a bad market if you need to.
What I mean by influence centres is buying in a location that is still in a reasonable travel time to the CBD or influence centre.
In terms of time, apart from Sydney, that would preferably be one hour’s travelling time in off-peak. In Sydney, that time frame is longer because of its multiple major employment nodes.
As well as that, it also still needs to have major work available, which is not dependent on just one industry, within a 30-minute travel time frame.
In Victoria, for example, you could buy up to Geelong and beyond, and up to Ballarat. Many locals see these areas as “regional”.
In Geelong itself, while people can travel to Melbourne for work in reasonable time, they have local employment as well as a major influence centre in Werribee, which is about 15 minutes’ travel time from Geelong. So that location ticks both boxes.
The reason for being within one hour’s travel time is that during slow economy events, such as the GFC, jobs may dry up where they are, but they can still travel towards the city for work until things improve.
There is no sense buying a one-bedroom apartment in an area where there is no market for it.
Equally, it makes no sense buying a two-storey house if the bulk of the population in that location is an ageing one.
You have to understand the demographics of the area as well as what tenants want.
It’s also important that you appoint a property manager who is going to professionally manage your property, but also be your eyes and ears on the ground in terms of any shifts in the rental market.
If your property does become vacant, they can then guide you on whether you should drop the rent to get it tenanted faster.
Also remember to never put off preventative maintenance as it will save you thousands in the long run. A few dollars spent when you buy the property can pay dividends down the road.
A property always has to be attractive to lenders, especially at the moment.
Most banks need to be willing to lend you money to buy it as well as be prepared to refinance it over the years.
This means no fancy apartments where there are major issues such as company titles, because lenders will shy away from these and that will make it harder to sell.
At some point in time you will need to sell a property so you need to assess the “lendability” of each asset.
If a lender isn’t going to give a home loan for a certain type of property, how are you going to sell it to a buyer?
This also includes very small units because lenders don’t like these.
That said, you need to ensure every property selection matches your financial fingerprint as well as your portfolio mix. It’s no sense bagging the bargain of the week if you don’t have the cash flow to hold onto it.
This involves the concept that if everything is going well with your property or portfolio, then you can sleep well at night.
Now, this is especially so for investors who own multiple properties.
As humans, we often get a “gut feel” about something, which we often ignore to our detriment.
However, for property investors, they should listen to their intuition because if a deal is going to keep you up at night, then it’s not the right one for you.
Another bonus dealmaker is that you should only take advice and recommendation from people who have more properties than you, have bought over more than one market cycle, and who own the same type of dwellings.
Taking advice from someone who has always bought off-the-plan, yet your strategy is to buy established property to add value makes little sense, doesn’t it?
Always question the “experts” in the industry about what they are doing right now. Are they still riding on the coat-tails of deals done 20 years or 30 years ago, or are they actively investing across the country in today’s market?
Just like there is no point going to a 1970s mechanic with the latest BMW, choose your advisers wisely if you want to make solid deals instead of mistakes that could have been easily avoided.
An investment is an asset or item purchased with the expectation that it will generate income or appreciate in value in the future.
Liquidity is the efficiency or the ease to convert an asset or security into cash without affecting its market price.