So after a few years of hard work, you’ve got a neat little fund set up, and you know that one of the best long-term ways to invest your money is to put it in property.
You’ve heard the success stories of million-dollar portfolios, of investors who have managed to retire early on high-growth properties and remarkable rental returns.
However, before you get sucked into that fantasy and imagine yourself living it up while the rental profits just keep rolling in, hit pause and get back down to earth because being an investor is not that simple, even if everything you’ve seen and read suggests otherwise.
As many successes as there are, there have also been many more failures – people have lost money on what they thought were good investments, and still, others have realised that saving up for retirement on the passive income generated through property takes a lot more time than they thought.
So let me outline some honest realities you need to know about property investment:
1. It will take a while – so make sure your wallet is ready
Property investment is really about the long term – it takes a number of property cycles, which equates to a number of decades to build a substantial asset base.
Over time you’ll have lots of holding costs and expenditures.
Make sure you have sufficient financial buffers in place to see you through the ups and downs of the property cycle.
2. There’s no foolproof formula for success
The path to successful property investment differs for everyone.
It depends on your financial circumstances, your time frame, and your risk profile.
However, you can learn from those who’ve gone before you and recognize that in Australia residential real estate is a high-growth, relatively low-yield investment so invest in the best locations you can afford.
And in today’s climate of lower capital growth, it makes sense to “manufacture” capital growth through renovations or development.
3. It’s not just about the perfect location
Even though your property’s location will do the bulk of the heavy lifting of your portfolio’s performance, it’s important to own the right property in that location – one that suits the local demographic and will be in continuous strong demand in the future, not only by tenants but by owner-occupiers who’ll buy similar properties pushing up the value of your property.
This means you’ll need to do some serious research or have an independent property strategist on your side to do the hard work for you.
4. It’ll require upkeep and management
Investment does not begin and end with the purchase of a property.
It’s not a set-and-forget affair.
You’ll need a proficient property manager to help keep your property tenanted and you should annually sit with an independent property strategist to review the performance of your portfolio.
It’s important to keep these realities in mind so you don’t get disappointed and quit when the investment journey turns out to be harder than you think.
It’s fine to be optimistic and look forward to ‘making it’ – after all, that’s what brought you here.
But the good things in life don’t come easy, and the same goes for property investment, even if it’s considered a source of passive income.
There’s a lot of hard work behind successful investments, and you’ll understand the efforts behind them once you step into it.
