Why it’s the perfect time to realign your regional portfolio
If you’ve been considering parting with a regional property, but you’re worried certain factors might make it a hard...
Are these common pitfalls holding you back from achieving your investment goals?
Blogger: CATE BAKOS, DIRECTOR, CATE BAKOS PROPERTY
I have met many prospective investors over the years. Some ask the clever questions at presentation nights. Others spend an hour chatting with me over coffee. Quite often I’ll have multiple catch ups over a lengthy period with client prospects. Surprisingly, I meet many who I see again a few years down the track and find that, for whatever reason, they still haven’t purchased an investment. I ask them honestly: “Why is it that you haven’t purchased yet?” Unsurprisingly, their answers sit in one of three camps.
“Paralysis by analysis” is the main culprit. Many technical, analytical personalities subscribe to reports, study quarterly data, try to interpret capital growth cycles and look for holes in media stories all the time. Unfortunately for them, the time and energy they pour into analysing data from all of these portals and sources make it hard for them to keep track of a moving market. Being sensitive to the potential of a market downturn is one thing, but to fear it so badly that no investment decision can be made is what adversely catches these prospective investor personality types.
Categorising the success potential of a property with online and reported data can be a mistake because a good property has many fundamentals to consider, not just the generalised information uncovered online on the suburb and property type. The style of the house itself, the nature of the street, the neighbourhood, the condition of the property (and any upgrades) are all impossible for an online portal to judge and scrutinise.
Numbers only tell us so much. Experience in the market (or for those who don’t have lots of property experience, finding someone who is trustworthy with this experience) can make a huge difference. Chatting with some of the well-regarded, career agents in a local area can reveal more information about the best streets and best property types than any online portal can provide.
Fear of debt is the second reason for procrastination. But as many authors and successful business people will say, there is a difference between good debt and bad debt. Debt that is used for the purpose of acquiring an appreciating asset is what we refer to as “good debt”. Accepting the prospect of debt is important for any investor, and good loan structuring, a great broker/banker who can clearly explain the loan set-up, and detailed cash flow projections should put most minds at ease. Rather than focusing on debt alone, investors need to be more mindful of cash flow. It is the badly-thought out, extremely negative cash flow situations that can create havoc for investors.
Fear of tenants, whether it’s trashing the property or not paying rent, or even fear of the property not being rented at all plague many prospective investors. This is a very real concern and while there are no guarantees when it comes to avoiding a bad egg tenant, there are four sensible mitigating actions which can significantly reduce the chances of tenant-related issues for any investor:
1. Targeting a suburb and property type with a strong and long-term rental demand. If in doubt, start with interviewing a good property manager. They are worth their weight in gold. No property manager wants to take on a hot potato, so if you ask them for tips before you go shopping, you’ll be more likely to find something which is pleasing to them, and in turn will have a better chance of renting well.
2. Target a property that is nicely presented internally. If it’s rough on the inside, consider a renovation or upgrade (in consultation with your property manager).
3. Be accommodating and respectful of your tenants. Don’t knock back the small requests when the tenants are keeping their end of the bargain.
4. Don’t cut corners on good quality property management. We ask a lot of our property managers, from quality inspection reports to managing tradies to handling maintenance requests and beyond. If you select a property manager based on fees alone you could be in for a series of disappointments.
The quest for 100 per cent perfection is the last inhibitor for an otherwise keen investor. No property ever scores 100 per cent; and I’ve been working in the industry for a long time now. Properties are like people; never perfect and they are all unique… even the ones on the same floor in a tower of apartments. Each property has its own subtle and obvious differences. Aiming for a property that has high owner-occupier appeal is sensible, as these are the properties that remain sought-after for years to come and it is buyer competition which drives prices up over time. While due diligence is important, sometimes “near enough is good enough” isn’t such a bad mantra to apply for someone who has been stuck for years, procrastinating their opportunities away.