In the world of property investment, success is often determined by a few crucial decisions.
Yet, a staggering 90% of investors consistently overlook two vital factors, leaving them vulnerable to pitfalls and missed opportunities.
In my experience, the two big things most property investors fail to do are:
- Formulate property investment strategy that can stand the test of time, and
- Regularly review their property portfolio’s performance.
By failing to understand what game they are playing and documenting a strategic plan for their particular stage of their property journey by using frameworks that have stood the test of time, investors often find themselves at the mercy of market fluctuations and continual negative media commentary leaving them uncertain of how to navigate the complex landscape of property investment.
A sound strategy not only provides a clear roadmap but also instills confidence in the investor's decision-making process, ensuring they stay on course even in the face of adversity like we keep getting thrown at us on a regular basis.
The second crucial element is the regular review of their property portfolio's performance.
A staggering number of investors allow their assets to stagnate, unaware of the potential risks or opportunities that may lie just around the corner.
By actively monitoring their investments, property investors can identify trends, make informed decisions, and seize lucrative opportunities that might otherwise remain unnoticed.
And regular reviews allows investor to recalibrate their strategies, ensuring they remain aligned with their financial goals and market conditions.
If you don’t really know why you want to build a property portfolio or how it will one day get you out of the rat race and if you don’t really know where you are heading, how will you know which properties to buy?
And how will you know if you’re on track and on target?
The trouble is if you don’t know where you are going, any road can get you there, but any road can get you lost.
And nowhere is this truer than property investing.
How much money do you want your property portfolio to produce?
How many properties will you need to achieve this?
And what type of strategy are you going to follow – capital growth or cash flow or are you just going to leave it up to luck?
Currently, there are over 145,000 properties on the market in Australia.
By the way...that's well below the long term averages and not all of these properties will make good investments.
In fact, most won’t.
Discretionary sellers are holding back putting their A grade properties on the market at present - most are holding back waiting to see an improvement in the housing market
To ensure I only buy properties that outperform the market averages I use a 6 stranded strategic approach
I only buy a property:
- That would appeal to owner-occupiers. Not that I plan to sell the property, but because owner-occupiers will buy similar properties pushing up local real estate values. This will be particularly important in the future as the percentage of investors in the market is likely to diminish
- Below intrinsic value – that’s why I’d avoid new and off-the-plan properties which come at a premium price.
- With a high land to asset ratio – that doesn’t necessarily mean a large block of land, but a property where the land component makes up a significant part of the asset value.
- In an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area as mentioned above.
- With a twist – something unique, or special, different or scarce about the property, and finally;
- Where they can manufacture capital growth through refurbishment, renovations or redevelopment rather than waiting for the market to do the heavy lifting as we’re heading into a period of lower capital growth.
By following my 6 Stranded Strategic Approach, you will minimise your risks and maximise your upside.
Each strand represents a way of making money from property and combining all six is a powerful way of putting the odds in your favour.
If one strand lets you down, they have two or three others supporting their property’s performance.
When you look at it this way, buying a property strategically takes a lot of time, effort, research, and something most investors never attain – perspective.
What I mean by this is you can gain a lot of knowledge over the Internet or by reading books or magazines but what you can't gain is experience.
It takes many years to develop the perspective to understand what makes an investment-grade property.
While most investors read a book or two, do a little research and then buy one of the first properties they come across, strategic investors are smarter than that.
They follow a system that is rooted in the real world and has stood the test of time in changing markets.
But it doesn’t end there.
I also suggest you…
While most investors just buy a property and hold it for the long term, strategic investors regularly review their investment portfolio’s performance.
When I ask investors how their properties are performing they usually have no idea.
They’ve just closed their eyes, crossed their fingers, and hoped for the best.
It makes no sense to invest in a property and then not review its performance every year or so.
Some investors avoid the tough decisions and excuse their property’s poor performance by saying things like “it will turn around eventually” or “I don’t want to make a loss, so I’ll sell it when I can cover my costs.”
When I assess the performance of my property portfolio, I like to ask myself a couple of questions about each of my investment properties:
- How has this property performed over the last few years?
- Knowing what I know now would I buy this particular property again?
- Is this property likely to outperform the averages over the next decade?
- Is there anything I could or should do to improve this property and generate a better return on investment for me?
Logically, if a property has not performed well over a 3 or 4-year period, it’s likely to be a dud investment.
The answers to these questions help ensure that I only retain top-performing properties in my portfolio and that my money is working hard for me.
- Also read:Latest property price forecasts for 2024 revealed. What’s ahead in our housing markets in the next year or two?
- Also read:Here’s how to avoid these 12 common reasons property investors fail to build a Multi Million Dollar Property Portfolio
- Also read:Sydney property market forecast for 2024
- Also read:Boom to bust: What makes property prices rise and fall
- Also read:This week’s Australian Property Market Update – Latest Data, State by State November 28th, 2023
If due to your financial capacity, you can only afford to hold five properties, you should aim to own the five best-performing investment properties you can.
This means that if your property isn’t giving you the return you feel it should, then it might be time to make a change either through renovations, by changing property managers or by selling up and buying a better-performing investment property.
I understand that if one of your properties is underperforming, it’s likely to be in a location where the market is flat and you may not get the optimal price today.
But don’t wait till the market picks up, because the gap between your underperforming property and better-performing investments will only widen as the market moves and it will become harder and more expensive to buy the type of property you’d like to own.
Essentially the sooner you can identify and offload an underperforming property, the better.
Sure you may crystallise a loss, or have to pay some capital gains tax on the sale and then pay stamp duty on your next purchase.
I understand this may mean that you’ll take two steps back to move three steps forward; but if you treat your property investments like a business, and that’s what all strategic investors do, you’ll recognise that it’s not how much money you make that matters; it’s how hard your money works for you and how much you keep that count.
You’ve probably heard me say that you should treat your property investments like a business.
And if that's the case your properties are your employees.
Think about it…
If your employees came to work late, played on Instagram, Twitter and Facebook all day, took a long lunch and when they came back weren’t in the mood to see your customers or clients, what would you do?
You’d probably give a performance review, which are the questions I’ve just suggested you ask about each of your properties annually; and then you probably will have to retrench them.
Sometimes you’d even have to pay a redundancy package to move them on so that you could employ hard-working people.
It's much the same with your properties, these are your employees in your real estate investment business and they have to work out for you in the long term.
If your properties are not giving you “wealth-producing rates of return” you won't achieve the financial freedom you desire.
I’ve heard too many investors say something like “I know this property isn’t growing in value but is not costing me anything to hold it.”
The problem is not factoring in the lost opportunity cost.
Sure their property may be cash flow neutral, but what these investors (conveniently) forget is the $50- $100,000 capital gain they may have made if they owned a property in a better-performing location.
The lesson for this is that sometimes you have to take a financial hit (that redundancy package) to allow you to move forward.
This may mean crystallising a loss, paying an agent’s selling commissions, or even paying some capital gains tax.
I know it's sometimes hard to make these critical decisions – many investors are too emotionally involved with their properties and have difficulty evaluating their performance objectively.
That's why I recommend you have somebody help you review your property portfolio annually.
But if you have adhered to a proven property investment strategy and then regularly review the performance of your real estate portfolio, you’re likely to avoid the majority of blunders that other investors make.
Learning what to do is as important as learning what not to do
If you’re looking for independent property investment advice, no one can help you quite like the independent property investment strategists at Metropole.
So while the property markets will create significant wealth for many Australians, statistics show that 50% of those who buy an investment property sell up in the first five years.
And of those who stay in the investment game, 92% never get past their first or second property.
That's because attaining wealth doesn’t just happen, it’s the result of a well-executed plan.
Planning is bringing the future into the present so you can do something about it now!
Just to make things clear...buying an investment property is NOT a strategy!
It's important to start with the end game in mind and understand what you need and what you want to achieve.
And then you have to build a plan, a strategy to get there.
The property you eventually buy will be the physical manifestation of a whole lot of decisions that you will make, and they must be made in the right order
That's because property investment is a process, not an event.
If you’re a beginner looking for a time-tested property investment strategy or an established investor who’s stuck or maybe you just want an objective second opinion about your situation, I suggest you allow the team at Metropole to build you a personalised, customised Strategic Property Plan
When you have a Strategic Property Plan you’re more likely to achieve the financial freedom you desire because we’ll help you:
- Define your financial goals;
- See whether your goals are realistic, especially for your timeline;
- Measure your progress towards your goals – whether your property portfolio is working for you, or if you’re working for it;
- Find ways to maximise your wealth creation through property;
- Identify risks you hadn’t thought of.
And the real benefit is you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor.
Click here now and learn more about this service and discuss your options with us.
Your Strategic Property Plan should contain the following components:
- An asset accumulation strategy
- A manufacturing capital growth strategy
- A rental growth strategy
- An asset protection and tax minimisation strategy
- A finance strategy including long-term debt reduction and…
- A living off your property portfolio strategy
Click here now and learn more about this service and discuss your options with us.