An ex-banker turned property specialist has offered up his top tips for how investors can ensure their finances are in order when looking to add to their portfolio.
Speaking on a recent episode of The Smart Property Investment Show, InvestorKit’s Arjun Paliwal discussed what he refers to as the three pillars of an investment strategy: finance, property, and risk and comforts.
The finance component is crucial to get right from the get-go, Mr Paliwal said, as it determines when investors are in an ideal position to continue on building out their property assets – and when they aren’t.
“I think when it comes down to that finance pillar of the strategy, even mortgage brokers are saying it, it’s about simplicity, right? There are loads of fancy new ways these days of how to save money in your bank account, the hundreds of accounts that you should have in order to have money for this and money for that. But you could be shooting yourself in the foot by trying to make this ultimate strategy because you just aren’t able to explain the picture,” he said.
“Someone who looks at your banking has probably a couple of hours on the desk before they have to jump to the next file and make a very quick decision.
“So, I think from that finance pillar… simplicity is key.”
Equally important is making sure “you control finance and not let finance control you”, Mr Paliwal told host Phil Tarrant.
“Controlling property starts with eliminating some myths that are out there, right? Quite often we go cash flow versus capital growth unit versus house, and everything has a massive ‘versus’ in the middle of it,” he said.
“It’s like this belief that started off with where you can’t have both. And I think once we start having those moments where we start to realize, hold on a minute, these capital growth assets became capital growth assets as a result of something called yield suppression. Prices just started rising faster than rates did. So one stage, almost everything had a higher yield and the value in line with that higher yield, and it was almost cash flow considered properties. Right?
“So, I think starting off with that position helps you start to go, ‘You know what, I don’t have to go the one or the other. I don’t have to be put down a bucket of house, a unit.’ And then from there, when you start to look at it you go, ‘Well, if I can put myself in positions of going, here are properties that are yielding well with drivers that are potentially safe for capital growth, from that angle, I don’t mind a field suppression comes down. I don’t mind if my property suddenly looks like a growth investor property, not a cash flow one.’
“And I think from there you start going, ‘OK, well you can have it. How do I now get to the level of whether it’s research it by myself or engaged property professionals?’ Whatever it may be, but part two then goes into the whole unit or townhouse and you start going, ‘Well how do I get control of that? I live in Sydney, prices are a certain way for houses, I must go to units.’ And that’s probably one of the most common ones we have in our client base. We go, ‘That’s not always the case.’ I mean we, we’re in Australia here you live in Sydney. Sydney is a great city, but at the same time there are markets where you’re buying houses.”