What are the pros and cons of investing in a commercial property?
What are the pros and cons of investing in a commercial property? Read on to learn more. ...
If you can’t answer this question quickly and simply, you're unlikely to succeed at property investment.
Blogger: Philippe Brach, CEO, Multifocus Properties & Finance
Why are you investing in property?
If you want to make the most of your property investments, you need to know what you want out of them – an early retirement? University tuition for your children? A beach house? What does property investment mean to you?
Most of us have a vague idea about what we want financially, but do you know precisely what your financial goals and aspirations are?
Approaching property investment with a strategy that suits your time frame, goals, risk and lifestyle is the best way to succeed. So whether you’re a first-time investor or an investor with a few properties already to your name, it’s worthwhile taking the time, if you haven’t already, to really think about what you are working towards, and how your property investments can support your goals.
PROPERTY IS YOUR TOOL, NOT YOUR GOAL
Many customers come to me with goals like wanting to buy 10 investment properties before they retire – but that is not what your goal should be. You might very well achieve that but actually be so far in debt that you’d be better off without half of the debt-ridden properties! Instead, think about your lifestyle and your future and what you want to achieve. Ask yourself: what kind of income do I want when I retire? When do I want to retire? Do I want to travel? Do I want to send my children to private schools? All these factors need to be considered so that you can figure out what you need to do to reach your goals.
YOUR TIME FRAME IS KEY
How much time you have to reach your goals is one of the most important factors shaping your investment plans. You may have a blend of short- and long-term goals and you might be quite close or quite far off from retirement. These factors should be taken into account when approaching your investment options, as well as your risk strategy.
For example, some properties might carry a higher risk than others, and if you’re nudging retirement, you’re going to want to stick to more risk-averse options. When making a list of your goals, be sure to include when you want to achieve them. Decide how many years you have to meet each specific goal and whether they’re going to be achievable. Be realistic and avoid setting any goals that you aren’t going to be able to achieve.
WHAT PROPERTIES WILL SUPPORT YOUR GOALS?
Once you know what you want to achieve and how much time you’ve got to do it, you’ll be better placed to know the kinds of properties you should consider investing in.
Even though there may be a range of goals you’ll want to achieve through your investments, typically the properties you buy will fall into one of two investment categories – capital growth or income-generating. In some cases, properties might tick both these boxes. Capital growth properties will offer you the opportunity to grow your wealth, as they increase in value over time, while income-generating properties will offer you an income stream that you might use to help pay down your debts – or in later years, to supplement your retirement income. Taxation considerations may also shape your property investment selection.
For example, if you are considering retirement you could start to build your strategy by thinking: “I want to retire on $100,000 income per annum. This is the equivalent of having $2 million in the bank, generating five per cent interest per annum without touching the capital. How do I get this kind of money by the time I retire?” You can then work out how much equity you need in a property portfolio, how much tax you will pay on selling the properties and work backwards to today.
Remember, buying investment properties on a whim, with no real connection to your goals, is not going to get you the best results. Even though you will always need to re-evaluate and adjust your goals as time goes by, if you have a clear idea about where you want to go, you’ll be much better placed to get there.