Are you considering entering the property market as an investor?
While the current market is predominantly made up of home buyers, investor numbers are on the rise.
As a property investor, taking that very first step can be exciting, but also quite nerve-racking and very confusing.
Knowing what step to take first can be just as confusing.
Combine that with endless amounts of information and opinions out there, it can lead to a serious case of analysis paralysis.
Would you like to know an easy way to make the right decision so you can invest with confidence and certainty?
Well, read on as I share the framework, we use with our clients to ensure they get it right.
End Goal
The first step you need to take is understanding the end goal, your why?
As Dr Stephen Covey said with his book of effective habits, “Begin with the End in Mind”.
If you thought the first step was property, you may have taken advice from the wrong person or made an ill-informed decision.
When we sit down with clients, that initial discussion is not even about a property.
Property is just the vehicle not the end goal.
It is more about their end goals and it really comes down to just one thing... Choices.
Then it becomes about understanding what size asset base and the passive income they will require to make those choices a reality.
As a simple example, if you wanted to create a passive income in retirement of $150,000 upon retirement, what would you need to do?
A basic solution may be to accumulate $5million worth of assets, unencumbered, giving you a 3% return.
To achieve that asset base, will it matter if you have 3 properties or 10 properties?
The answer is of course no.
Finance
Once you have established your end goal, the next step is finance.
Sure, a bank or broker may be beneficial, however, they are very much shorter-term thinkers.
They want to find you the best rate or the best loan for the next purchase, the current situation, there here and now.
At Metropole, we work more with finance strategists, who can look at the big picture and can look one or two steps ahead.
Unlike a bank or broker, a good strategist will also be able to assist you with a major component of your property portfolio — establishing a buffer.
Building wealth is all about time in the market, to allow for compounding to work its magic.
Having a buffer in place is a necessary risk management tool to help you to hold the asset over the longer term, despite job losses, market downturns and black swan-type events.
After working with a Finance Strategist, you should have an idea of the following;
- Your borrowing capacity
- Interest Rate and Loan Details
- Your Contributions — deposit, stamp duty, conveyancing etc.
- A Buffer
From here you can determine our budget and work towards getting a pre-approval in place.
Structure
While you are in the early stages of understanding your financial position, I would strongly recommend understanding what name you will purchase in.
It is important to understand this upfront and to communicate it with your finance team as it may affect your borrowing options.
This is another reason why it is incredibly important to understand what the end goal is, before just running out to buy a property.
You may choose to purchase this in your own name, but ideally, it is an asset you may want to pass down to a family member one day.
So, 20 years down the line, you come to pass it down and you may be up for capital gains, stamp duty etc.
All of this could have been avoided if you had just structured it correctly from the beginning.
It is incredibly important you get this advice from a licenced professional.
Your Accountant may be a good place to start, but a lot of our clients also speak with Ken Raiss and his team at Metropole Wealth Advisory.
Property
Ok, ok, now we can get to the property!
Think of how well-placed and prepared you will now be.
You will have a pre-approval in place and finance ready to go, with peace of mind you are within your comfort level, with a buffer in place.
You are buying in the right entity based on your personal requirements and can now efficiently pass on to future generations without tax burdens.
You will also now understand what you want this property to do for you longer term, to reach your end target goal.
So onto the property...
How will you decide where and what to buy?
What will your decision-making process look like, will it be based on a news headline or a gut feel?
At Metropole, will make this decision strategically, based on facts, data and numbers and more importantly, decades of experience and perspective.
We favour a more strategic decision-making process over just buying and hoping.
We never leave it to chance and follow our strict Investment Grade criteria to ensure we find an asset to match our clients' longer-term goals.
Summary
Investing in property can be a very exciting time.
But it can also be very confusing and stressful if you do not get it right.
If you are starting with a property, you are starting in the wrong place and at the wrong end.
Begin with the end in mind and then work backwards.
It is important to have finance in place to know your limitations and equally important to understand what name to buy the property in.
With all of this in place, you can now shift your focus to the property and buy with confidence knowing it is part of your long-term plan.
Ensure you take a strategic approach over a gut feel by understanding what makes an investment-grade property.
You will take the stress and risk out of the buying experience and maximise your outcome.
You will also be one step closer to your end goal.
