Login
No more guaranteed growth: Why manufacturing value has become the key
As the property market begins to temper across the nation, strengthening asset values at low cost has become pivotal to investors’ success, a leading buyer’s agent has said.
Pinnacle Buyers Agent founder Michael Lezaja said that while the market previously did the heavy lifting, investors would need to be more selective in their asset purchases.
Following the recent raft of property reforms, Lezaja said there was a significant opportunity for buyers to act if they had the required risk appetite.
“I know everyone is probably hearing this all the time: ‘Now’s the best time to buy.’ But it really is, if you get your strategy right,” Lezaja said.
“I think a lot of people are still on the sidelines, and they’re sitting there in fear, but the ones who are actually looking to buy are still out there.”
Instead of purchasing a property that would take a long time to become neutrally geared, Lezaja said buyers should target assets that become positively geared in two to four years.
“When you buy, you need to be super cautious about getting it to be neutrally geared as soon as possible.”
Despite the apparent appeal of blue-chip properties, Lezaja said buyers should be aware of the risks associated with these assets, as they often require significant capital expenditure.
For an investor looking to grow their portfolio, Lezaja likened purchasing a blue-chip property to buying a brand-new BMW.
“There is no value in it, and it is just sacrificing your lifestyle.”
“If you buy them (blue-chip properties) at the wrong time, they will create so much pain financially for you that quite often you don’t actually see out the hold,” he said.
Conversely, Lezaja said savvy investors were targeting properties in lower-socioeconomic areas, driven by low holding costs and didn’t require owners to sacrifice on their lifestyle.
“The goal is to buy as many properties as you can that don’t cost you money on a week-to-week basis.”
Manufacturing equity: The next big portfolio move
By investing a small amount and committing to do-it-yourself (DIY) projects, Lezaja said that investors could add value to their assets, allowing them to continue growing their portfolios.
Lezaja said handy owners could do small tasks themselves, such as replacing flooring, repainting or garden maintenance,
“If you buy a good asset and you can put in a bit of sweat equity, that is the faster, more accelerated way to extract that equity to buy your next one, and you don’t have to spend a lot of money.”
According to Lezaja, investors could also manufacture equity by buying a property with flaws, such as being on a busy road or next door to a train line, as they could potentially secure it at a significant discount.
He said that buyers could secure an asset for up to 20 per cent below its market value by targeting something deemed “inferior”, provided they were willing to deal with the associated risks.
“But understand the risk associated with buying inferior assets is that you can’t liquidate them. If it hits the fan and you need money, you’re stuck.”
“But they will get you to your next property without having to wait for capital growth. They are instant equity.”
Similarly, Lezaja said that investors with enough land space could increase their equity and cash flow by adding accommodation through a granny flat, provided it could be done affordably.
He said that to achieve the best return, landlords should spend no more than $150,000 constructing a granny flat.
According to Lezaja, another way to add value could be to internally convert a property to add an extra bedroom.
“I think right now with the changes, a lot of investors need to look at it because yields have been so compressed, and if you want to stay in resi, where are you going to get a yield from. You’re going to have to manufacture it.”
Listen to the whole episode HERE
Want to see more stories from trusted news sources?
Make Smart Property Investment a preferred news source on Google.
Click here to add Smart Property Investment as a preferred news source.