What makes a successful property investor?
In my role as an accountant and advisor I have consulted to thousands of property investors over the many years that I have been in practice.
Some investors have been successful and others not so successful.
But over this time I have observed what it is that makes a successful property investor tick – what it is that they do that enables them to stand out amongst the pack and what the attributes are that make them so successful.
Here then, is what I have observed, 7 habits of successful property investors.
Habit 1 – They have the Right Mindset
Successful Property investors understand that debt is a tool to help them leverage and build their asset base and as such, debt is not a bad thing if managed correctly.
They do not over-commit which means that their cash flows are never impacted if anything untoward was to occur.
In other words, they are never put in a position to have to sell a property if something in their life goes wrong.
They always have in place risk strategies such as Insurances (Income protection, Life cover, Landlords insurance) and they establish buffers with banks to protect their cash flows.
They treat their Property investment like a business and to them property investment is an active not a passive, investment.
Habit 2 – They get Educated
Successful property Investors are constantly reinvesting in themselves by attending seminars, reading property publications (like this one) and reading property websites.
They make the effort to keep themselves up to date.
In fact it could be said that their hunger for quality property information gives them a competitive advantage and allows them to pounce when a suitable property opportunity arises.
Being better property educated is the difference that allows them to make their next investment decision with both accuracy and speed.
Habit 3 – They use Professionals
All the successful investors that I know use the professionals around them.
They use professionals just like a company would use a Board of Directors to provide them guidance and advice in each specialty field.
- They understand that the Accountant /Financial Advisor can assist with Income tax and structure establishments. For example, whose name do I buy this property in? What is my expected budget and cash flow?
- They form great relationships with their Broker/Banker who will assist them with obtaining the best finance to purchase the property, and an ongoing ability to draw equity if required.
- They build great relationships with their Buyers Agent to assist them with purchasing the right investment property in the right area for the right price without any emotion.
- They use their Real Estate Agents to act as the go between the landlord and the tenant as well as look after the ongoing management of the property.
- They use Lawyers to assist with conveyancing and estate planning issues if required.
- They work with an Insurance Broker to ensure that they are adequately covered in all areas especially mindful of insuring ongoing cash flow.
Habit 4 – They understand both Leverage, and Time In the Market concepts
Successful property investors understand that in order to increase their Asset base they must borrow the money and manage the cash flow (the leverage).
They do this without putting themselves under undue stress and they always have a buffer in place in the event of an emergency.
They know that purchasing property is a long term investment and cyclic, they don’t panic if the market turns.
If they have selected the right property they know that time will heal all things and capital growth will occur over the long term .
They understand that the return on property investment is not just the rental, but it is also the capital growth (invisible, but money in the bank) which helps them to focus on the bigger picture and not react by selling when faced with either, a bad tenant issue, or a short vacancy period or a slower market.
They know that if they have purchased correctly then the key is, time in the market.
In other words, the ability to spend more time in the market reduces the risk because of capital growth.
However they also can recognise when they have bought a dud and can quickly sell to cut their losses if necessary, and move on.
Habit 5 – They Know the Market
Successful property investors do their research and seek external assistance before buying a property to ensure they invest in the right areas.
They know what areas are the most likely to achieve growth within a state by city suburb and street, and what the demographics of particular cities, suburbs and streets within the suburb.
They often seek assistance from professional buyers agents to do their legwork and whom have all the statistics on hand regarding capital growth trends, overdevelopment, vacancy rates and rental yields potential future plans for the area, and will also take emotion away from an investment.
For them, it’s a business decision plain and simple, and all about returns both capital and rental.
Habit 6 – They Understand the Effect of Tax and Cash-flow, Depreciation and Negative gearing
Although most successful property investors are not tax accountants, they leverage their accountant to manage this area but they do make it their business to understand how the taxation system assists their cash flow as they know this is critical to them, ‘cash flowing’ the next property.
They understand how negative gearing works and the significant positive impact that depreciation of their properties, buildings, fixtures and fittings, has on their cash flow, which in turn may influence the style of property they invest in, (both old and new).
Habit 7 – They Renovate for Profit
Because the successful property investors treat this as a business they are always looking at ways of maximising their return on investment, always.
So, if they see an opportunity to increase their returns by investing in a renovation of a kitchen say, or a bathroom or something larger like by adding a bedroom or granny-flat, they will do this.
They recognise that by investing an amount of money by renovating, then this could generate both instant capital value and an increased rental return.
Property Investment is ingrained into the D N A of the Australian Investor but not everyone is successful.
I have learnt over the years not to reinvent the wheel but to watch and learn from successful investors and then just copy their actions, the seven habits, and implement the same.
By following these steps you are increasing your chances of being successful.