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Don’t chase your next purchase – do this to grow your wealth instead
Investors who impulsively purchase their next properties without thorough long-term planning risk throwing their wealth creation goals into jeopardy. This is how to think ahead.
As interest rates rise and tax policy reforms continue to shake up the industry, investors who plan for the future by thoroughly considering all market indicators and changes will be best equipped to succeed.
In a recent episode of The Smart Property Investment Show, PRPTY360 founder Michael Fadini told host Phil Tarrant about the importance of thinking ahead before making decisions.
Fadini said that investors needed to have a long-term plan in place, assess lending risks, and factor in the way that future policies will impact the share of investors in their target suburbs.
He stressed the importance of financial planning, which he said had been a major “game changer” for many investors, particularly those thinking about their retirement.
He said financial planning had become more holistic in the past decade, allowing advisers to provide flexible, tailored strategies, taking into account all areas of an investor’s portfolio.
“They can say, ‘If you were to consider a self-managed super fund (SMSF), here’s what it would look like. Here’s the transparency of that and the rest of it’.”
Fadini said it gave investors confidence as they could be assured they could fulfil their wealth creation ambitions.
“Things have been stress tested at 2 per cent above the borrowing capacity, etc.”
“When they’re in that professional advice environment with that plan, and they’re going to see the planner every six months or 12 months, whichever their preference is, then that gives people confidence.”
Additionally, when it came to the recent SMSF changes, Fadini warned investors against jumping into purchasing without thorough forethought, as the 10 August deadline approaches.
“I don’t think it’s the right time to set up a fund. I think that that’d be a bad experience all the way through.”
Fadnini said it was important to watch how lending would evolve, noting that most non-bank lenders relied on funding from banks.
“If competition between lenders declines, borrowing costs could increase, as lenders may have greater scope to raise interest rates.”
“That’s already been part of the residential SMSF journey. I think people, whether they’ve been in the industry or a residential SMSF for a period of time, have seen rates play out completely differently to the interest rate cycle.”
Before even investing, Fadini said it was essential to have a long-term view by factoring in current and future policy changes instead of simply being complacent.
He said, during times of major policy changes, investors tended to flee markets, disrupting the balance and making conditions more volatile.
“If investors start to flee the marketplace when it’s not working anymore, then all of a sudden, your property could be less than what you paid for it because you didn’t pay attention to that.”
According to Fadini, in healthy markets, around 70 per cent to 80 per cent of people were owner-occupiers, with the rest being investors.
“If you’re now looking at suburbs in locations where the investor part of that market has changed from 50 or 60 per cent in favour of investors, then we believe that’s a set of numbers that you need to pay attention to closely.”
“If owner-occupiers start to come back into the marketplace and investors are coming out, those are numbers that you need to be aware of.”
Fadini also said that, following the expansion of the 5 per cent deposit scheme last year, there was an influx of first home buyers shifting in the market, which could heavily impact investors’ plans.
“When market movements like that happen, it’s important to be aware of how they’re going to influence where you’re investing.”
Listen to the full episode here
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