Hedland & Newman

6 Steps To Overcoming An Investment Setback

What do you do when an investment doesn’t work out as planned? Do you give up on your goals? Do you lose your confidence? Do you stick your head in the sand?

Most of us at some point have experienced a financial setback or in some cases even a disaster!

I have had my fair share of setbacks and this week I will share with you why your mindset is the first step to overcoming these challenges to continue building a profitable portfolio.

Watch here for my 6 essential tips to turn your financial setbacks into success.

Five tips to achieve financial freedom in less than five years

As a beginner investor the path to creating a large portfolio to fulfill your capital growth and cash flow objectives can feel long, overwhelming and arduous.

A decade ago property investors accepted that financial success was achieved through years of strategy refinement and portfolio development.  In today’s fast paced world, the modern investor wants quicker results and minimal effort. We are looking for options that will accelerate our wealth creation and help us reach financial freedom sooner.

In just five years I was able to create a large portfolio that gave me the freedom to stop working and budgeting week to week, while still allowing my portfolio to grow continually.

Five tips to fast-track your portfolio, and achieve financial freedom.
 
TIP 1: Appoint a mortgage broker who specializes in creating multiple property portfolios.
These brokers understand the mindset of the property investor over brokers who typically deal with home owners. They will help you develop your financing strategy, focus on leveraging your equity and guide you on how to maximize your borrowing capacity.

Early on in my investment journey I missed a number of fantastic buys, due to my financiers not sharing and understanding the growth vision I had for my portfolio. Aligning with a proactive and investment-minded finance broker ensures your goals are mirrored by a specialist who will tailor a lending plan to exactly suit your needs.

TIP2: Create instant equity. When getting started, be savvy and look for opportunities in the market that will deliver instant equity within six months of settlement. This is key to fast growth. Instant equity might come in the form of a house and land package, renovating a well-located but older unit, or adding extensions such as a granny flat.  Selecting a property that will deliver a minimum of $50,000 equity upon completion of the project will place you in good stead for your next investment purchase, generally within 12 months.

I had the opportunity to invest in a number of house & land packages in the northwest, which at the time were delivering outstanding equity benefits upon completion.  With as little as $50,000 deposit required, these new family homes were taking approximately six months to complete and delivered $150,000 equity upon completion, which was then used to purchase additional sites and apartments with no further money required.  House & land packages are one of the fastest ways for beginner investors to get ahead and build an equity base behind them for future purchases.

TIP 3: Short term pain before long term gain. This means making some short term lifestyle choices to maintain a positive position with lenders while you grow your portfolio to a self sustaining level.

Investors who have not yet purchased a PPOR should hold back and remain in the rental market until they have secured a minimum of three to four investment properties.
Remain in a stable job and avoid unnecessary debt and spending while your portfolio is in its initial growth phase.  Credit cards, large car and personal loans at this early stage will only prolong reaching your goal.

Lifestyle freedom and luxuries are the spoils of a successful property investor and should only be indulged once financial freedom and stability has been reached.

I chose to wait until I had 20 properties behind me before purchasing a PPOR and second vehicle.  This was the key to continuing to invest actively, as by this point the banks did not see these expenses as having a significant strain on my ability to service further investment debt. Had I chosen to purchase these items earlier on in my investment journey they would have had an immediate negative impact on my ability to further invest in property at a rapid rate.

TIP 4: Get real about risk. Every investment, in any asset class has an element of risk. The key is not to disregard risk but to obtain a level of comfort with the risk associated. Market timing, location and the property itself will all carry risks, but they can and must be calculated against the benefits. There is no return without risk, so arm yourself with the best information to become comfortable with the direction and portfolio goals you have set.  Talk to other investors, finance brokers, property strategists and real life success stories – people who have walked the path you wish to take and achieved their property investment goals. In my experience, successful investors are more than happy to share the strategy behind their success.
See http://www.crawfordrealty.com.au/investment-success#itemDeni

TIP 5: Appoint a mentor. Like any business, sporting event or expedition in life, goals are more often than not reached when a carefully constructed game plan has been set from the start. An experienced property investment mentor will guide and advise you on how to best position yourself to achieve your goals. This should be someone who has achieved significant results in property investing and can provide accurate guidance based on their personal investment journey.  They will adequately guide the growth of your portfolio and save you from a number of costly mistakes that are often made in the beginner stages.  Being comfortable and confident with your strategy is the only way to rapid and sustained portfolio growth.
See http://www.crawfordrealty.com.au/One_on_One_Strategy_Session/ 

Maximizing equity to build your property portfolio

Equity is the difference between what your property is worth and what you owe. As a property’s value grows, the equity in the asset increases providing a source of funds to borrow against.  ‘Unlocking’ this value provides a significant opportunity for investors to buy more property quickly without needing to save for a deposit.

Investors will need to find 20% from the equity in their existing property as a deposit if they want to avoid paying Lenders Mortgage Insurance (LMI).  Maximising the equity in the property will increase your borrowing capacity and could even generate enough for you to invest in more than one property.

Firstly, investors should ensure that the property achieves the highest valuation possible. This means keeping it well maintained and making some aesthetic improvements if necessary.  Agents will often provide free valuations to give you an idea of the market price and can also offer advice on how to improve a property and which areas you should focus on.  However, lenders will do their own valuations and in the current risk-averse environment, investors should be prepared for these to come in under what they believe the market value to be.

Secondly, shop around for a lender. Each lender has different assessment criteria and your approved amount could differ by ten of thousands of dollars between lenders. Be aware though that each application is recorded on your credit record and this could lead to rejection from your chosen lender if they see you have made multiple applications.

A good way to avoid this issue is to seek help from an experienced mortgage broker.  They will know which lenders are likely to be more flexible with their borrowing capacities and can offer a variety of products from different lenders, at no cost to you.

As you grow your portfolio, diversify your lenders. Utilizing different lenders for different properties will give you greater flexibility of products, reduce risk and will provide more opportunity to further build your portfolio.  It can be tempting to stay with the one lender for simplicity or you may be looking to co-secure the loan rather than taking out a separate one.  While this strategy does have its benefits – potential costs savings and the advantage of not having to pay LMI if your deposit is less than 20% – there will ultimately be a limit as to what a single lender can offer.

If you really want to make your equity stretch further, you could choose to put down a deposit of less than 20%, take on the LMI, and invest in two properties.  As LMI is a borrowing cost it is tax deductible over five years for investments.  Many investors use this strategy to buy more than one property using their available equity.

In addition to the value of the property you are borrowing against and the equity it has created, the amount you will be able to borrow will also depend on a number of other factors such as the value of the new property, the rental income it will produce, other assets, income and your credit risk.  It is important that the impact of these factors on your approval is carefully considered before you submit your application.

As always, professional financial advice is recommended to ensure you make the decisions best suited to your financial position. We recommend using a local area expert when considering finance – http://www.crawfordinternational.com.au/professional-services/

Stock market volatility highlights benefits of property investment

Greater confidence in the global economy has seen a sustained improvement in the Australian stock market over the last several months with the S&P/ASX 200 breaking through the all important 5,000 mark this month.

However, this positive development was followed last Thursday by the market’s biggest one day drop in nine months which saw more than $35 billion wiped off its value.

The market has since recovered but the ongoing volatility of the asset class and its hyper-sensitivity to global events highlights to investors the importance of balancing a portfolio with more stable asset classes.

Property, historically shown to be less volatile than shares, is a solid option. When the Australian share market crashed during the GFC, 54% was wiped off its value. In comparison, property values and rents overall remained relatively steady, with house prices falling less than 5% from peak to trough (RP Data).

The debate over which is the better performing asset class will always be a popular one but according to the ASX’s 2012 report on long-term investing, shares and property have actually produced similar returns over the last 10 years, when taking into account tax and costs. But property did come out on top.

It returned the lowest and highest marginal tax rate for the 10 year period with returns of 7.2% pa and 5.8% pa respectively.

Shares achieved 6.5% pa and 4.6% pa at the lowest and highest marginal tax rates, respectively.

Both assets have their pros and cons.

Shares are more liquid making it easier to access your cash if you need it. They can deliver more capital growth over shorter timeframes – but investors need to be aware that gains can be lost just as quickly.

Property on the other hand is less liquid but will typically deliver more stable growth. And as the sole owner, rather than part owner, as is the case with shares, you have complete control over the management of your asset giving you the power to improve it and increase its value.

Investing in the share market without the expertise of a financial advisor can also be challenging – many investors simply find property easier to understand.

Regardless of your personal preference and appetites for risk, what is key is a well researched strategy, a diversified portfolio to reduce risk and a long term view to ride out any booms and busts.

Invest Outside the Box to get ahead in 2013

It’s a tradition every January for real estate experts to give their predictions on the outlook of the Australian property market and pick hot spots for the coming year.

2013 is shaping up to be a very interesting year globally with all indications pointing towards the Australia property market during 2013 mirroring similar trends which occurred during 2012.

Property prices in most capital cities are expected to remain relatively subdued with marginal increases in rental returns, with the exception of Perth which is expected to benefit directly from the on-flow of growth from the WA resources sector in the second half of 2013.

In contrast, the standout performers for 2013 are expected to be the resource towns.

With property markets in major mining towns during 2013 remaining buoyant and investors achieving rental returns in excess of 10% PA in most locations.

The fundamental drivers that have underpinned the property markets in mining towns throughout Australia still remain the same in 2013 as they did in 2012 – Strong international demand for Australian resources, high ore prices, limited housing stock and a rising demand for accommodation, all contributing to strong trends in the Pilbara region of WA.

For property investors who have traditionally focused on investing in major capital cities, I challenge you to think and invest outside the box for 2013, as this year will be a game changer for the Australian resource industry and those investing in towns that benefit directly from it.

In particular, property investors should understand that the factors supporting the housing dynamics including rental returns and capital values in mining towns are long term trends with extremely positive futures both for the country and these regions in general.

Considering trends over the past 10 years, the median price of a house in Port Hedland, for example, has increased on average by 18.2% each year, twice the annual rate for Perth at 9.8%.

Interestingly taking a 15 year perspective, the annual median price of a home in Port Hedland has risen on average by 13% PA making it a high returning ‘blue chip’ investment using any independent criteria. In Karratha, property investors have achieved on average an 11.4% increase in the median prices per annum over the last 15 years.

The constant hype about boom/bust trends in mining towns should be placed into and considered with this long term perspective.

For those investors looking for the next hot pick and fast movers of 2013, there are specific mining towns in which real estate is currently undervalued and primed for future growth.

During the coming year, I believe the mining towns of Newman in Western Australian and Moranbah as well as Gladstone Queensland will be star performers for investors.

These three mining towns are set to benefit from continued new investment during the coming year, which is expected to place further pressure on the local supply of housing leading to an upward pressure on rents and capital growth.

Diversity is the key to any well balanced portfolio and helps to ensure that the investor is protected through both up and down markets. If your strategy has been focussed on negative or capital city properties, make 2013 the year you invest “outside the box” and add the strength of an income generating property to your portfolio.