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The 5 lessons investors wish they knew sooner
If seasoned investors could go back to day one, chances are they would do plenty differently. Here are five lessons they wish they knew from the start.
With years of investing experience behind them, Pinnacle Buyer’s Agents founder Michael Lezaja said many investors would approach their journey very differently if they could start again.
“A bit of time has gone by; they have seen how they performed, and they’ve learned about property investment, behavioural patterns and the ways that things could be done better over time,” Lezaja told SPI.
Similarly, Lezaja said knowing what he knows now would have put his property journey much further ahead much sooner, giving him confidence in his decision-making.
“It would have helped me to avoid some of the mistakes I made, because a lot of it was trial and error in the beginning.”
Here are the five lessons investors wish they knew:
Hit the ground running
Lezaja said that one of the most important factors new investors often overlooked was the importance of their first purchase and how it would position them
While established investors could afford to make a mistake once they had developed a significant portfolio, he said the margin for error was much smaller at the beginning of a wealth-building journey.
“Property number one is the most important of all, because it is the one that sets your portfolio up. It positions you to go to a second and third and so on,” Lezaja said.
“It is critical that it is in the right area, the right type of asset and that it is going to produce capital growth, because that is going to set you up.”
He said that if investors got their first property purchase wrong, they would set themselves back by years in their journey and potentially cost themselves hundreds of thousands of dollars in missed gains.
Lay the foundation
According to Lezaja, investors often started on the wrong foot by purchasing property in their own name, and limiting their ability to grow their portfolio.
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“A lot of times they will buy the first couple in their personal name, and they will tap out in terms of serviceability, limiting their ability to grow to three, four, five properties and beyond.”
While it was a simple error to make, Lezaja said its impacts could leave investors out of pocket by tens of thousands in legal and stamp duty fees, as many were then being forced to sell their own property to a structure or a personal trust.
“It’s a costly mistake that can cost from $20,000 up to $50,000 to transfer that property into that trust.”
“It’s an expensive lesson, and it is better to get the right advice from a tax accountant or financial planner to ensure you are structuring your portfolio correctly from the start.”
Don’t wait for the right time; be aggressive
Lezaja said that one of the biggest lessons investors learned throughout their journey was how much their hesitation had cost them.
“The regret I hear most from investors in their 30s, 40s, 50s isn’t just that they bought the wrong property; it’s that they waited to purchase more,” he said.
“The sooner you’re in the market, the more you can leverage the capital gains of property one to buy property two, three and four.”
While it was easier for younger investors to be more aggressive as they had fewer expenses, Lezaja said that it would pay dividends in the long run.
“Aggression when you are young compounds harder than anything else.”
“Minor changes and adjustments early on compound a great deal later on in life.”
Don’t try to outsave the market
In addition to being more aggressive, Lezaja said investors should not wait until they can accumulate a 20 per cent deposit.
While many investors saw lenders mortgage insurance as a “waste of money”, Lezaja said successful investors saw it differently.
“LMI isn’t a penalty; it’s the entry fee for time in the market.”
With the property market significantly outgrowing wages over the past few years, Lezaja said that investors should look to purchase as soon as they can, even if it means taking a higher LVR loan.
“Get into the market, don’t try to outsave it,” he said.
“It’s easier to make money than it is to save money on the average wage.”
Don’t buy in your backyard
With property market information easier to access than ever before, Lezaja said that there was no reason that investors should restrict themselves to their local area.
He said that investors who were chasing rapid portfolio growth should take advantage of their ability to employ a data-backed, borderless strategy.
Lezaja said that with access to a much broader range of data, investors should not feel restricted to their local area and look to regions with stronger growth potential.
“Now, we are privileged to be able to select a market out in one suburb out of 15,300 suburbs that is going up in value, and we’re making a return on our money invested from day one, which is a luxury we have today we didn’t have previously.”
“Buy in the market that is going to grow based on the data, have that market perform in a one- to three-year time horizon, extract that equity and buy your next property to grow your portfolio faster.”
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