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Investment tip, plan with the end in mind

Investment tip: ‘Plan with the end in mind’

by Bianca Dabu | December 12, 2017
research
1 minute read

Investment tip: ‘Plan with the end in mind’

December 12, 2017

Martin is a 31-year-old budding property investor who’s set to enter the market with $140,000 worth of savings and $500,000 worth of parental gift. Should he accept the additional money if it means he had to invest in Bondi, which he describes as a “flattening market”?

Before getting himself educated about property investment, Martin initially wanted his first investment property to be a two-bedroom apartment in Bondi, where he currently rents a place. Upon realising that there are more and better opportunities in other markets—no matter how much he loved living in Bondi—he decided to dig deeper into research to make a smarter investment decision.

Now, the budding investor is looking for a “targeted area of capital growth and higher rental yield”. However, despite knowing better, Martin is wary of being on starting in the business of wealth-creation on his own with only an annual freelance income of $140,000. While he has an access to $500,000 from his parents, making use of the money would mean he had to invest on a principal place of residence in Bondi, which he describes as a “flattening market”.

According to him: “My own inkling is that I should go [at] it alone for two years with one or two small investments in targeted areas, and hopefully be back in the financial position to take advantage of the parental support to buy a place to live in Bondi.”

Propertyology’s Simon Pressley said that Martin’s circumstance is common among budding property investors—the all too familiar clashing of investment goals and personal considerations. While both are important, there are completely different mindsets required to deal with them.

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He explained: “Let's not confuse knowing our neighbourhood, where I live and where I've grown up, with knowing a market [because] they are two completely different things.”

“Living there [in a suburb] means you know the social amenities and the busy roads ... but that's largely irrelevant if the outlook of that broader city is not particularly good—there's two different mindsets required there.

“We need to have an investor mindset and see property as a financial instrument,” the buyer’s agent reiterated. 

‘What is the end?’

Investing in properties is obviously a big decision to make as it entails risks that are quite costly for most people.

As someone who’s only beginning to dip his toe in the business of creating wealth through property, Martin must already start thinking about his ideal ending, according to Simon.

He said: “All big decisions, plan with [an] end in mind … So, what is the end in mind? I'm assuming you're contemplating investing in property because years down the track, you don't want to be strapped to a government-funded pension which isn't going to provide much of a lifestyle.”

“Is buying a property in … Bondi going to help you do that … ? That will be based wholly and solely on your personal requirements and emotion.

“[On the other hand, when you take] a critical look at this massive country called Australia where there's a lot more opportunities, [will] that [be] better for you?” Simon added.

While Bondi appeals to many because of its beaches and cafes, official statistics from a 15-year period shows that a suburb called Narrabri actually gives a better total return on investment. A lot of people may not have heard of Narrabri, which is located in northern New South Wales, but it turns out to be a better place for property investment compared to the better-known Bondi—a dollar for dollar return on investment.

According to the buyer’s agent: “Everyone's heard of Bondi and they're like … ‘I would want to live there, so what a great investment,’ but in a rural community like Narrabri, you actually would have made significantly more money.”

At the end of the day, a property investor will do well to remember that as someone whose desire is to build wealth, you must be able to distinguish the huge difference between demand and desire. Wanting to buy a property solely because you personally liked its location as, perhaps, a holiday getaway is a risky strategy to use.

“The reality is plenty of people want to live in Bondi but not many do because they can't afford it or they don't actually work near there,” Simon said.

Smart Property Investment’s Phil Tarrant’s final advice for Martin: Continue educating yourself and share your knowledge with your parents so you can make smarter financial decisions together.

Phil said: “There's better potentially investible locations or assets outside of Bondi where, for that same $500,000, it might get you into multiple markets that are all going to go up in value.”

“At a point in time when you're ready to get your own place … then you've got all that equity in other properties that you can still use to get yourself into your own place,” he concluded.

Tune in to Simon Pressley’s Q&A episode on The Smart Property Investment Show to know more about how to pick the right buyer’s agent to suit your own needs, how to balance your time effectively as an investor, and how confident you should be when using a buyer’s agent from another state. 

Investment tip: ‘Plan with the end in mind’
Investment tip, plan with the end in mind
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