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.
4 tips to change your financial life and make it stick
We’re now well into the new financial year and I’m wondering how many of us are thinking about improving our financial positions in the 2015 tax year – and how many of us are actually taking action.
What you need to do to organise your finances seems like common sense – budget, plan etc. But it’s amazing how many people just don’t do this. I believe, for the most part, that they think their dream lifestyle is just too far out of reach. Or, maybe they hope they will stumble upon some kind of quick fix (lottery win, inheritance, rich partner!).
This blog isn’t about how to create a budget or a financial plan. It’s about sharing a few simple tips that have stuck with me through the years, made the process simpler and more effective, and provided clarity during my decision making.
TIP #1: Goals are essential – but be realistic and don’t have too many!
I think one of the main reasons people don’t stick to budgets and don’t realise their goals is because their goals just aren’t realistic. Grand ideas of paying your mortgage off in 10 years while investing in three properties, taking a two month trip around Europe and buying a new car seem great. But what will be the impact of this on your daily life? Will you be unable to go out, socialise, buy new clothes etc because the budget doesn’t stretch that far?
Rather than working for you, your budget is working against you. You begin to feel contempt towards the budget because it’s depriving you of enjoyment. Before long, the budget has been forgotten and you’re back to your old habits!
Budgeting is not about deprivation. It’s not about cutting funds for social occasions, holidays and personal items altogether. It’s about structure. It’s about allowing yourself these things while ensuring you don’t spend more on them than you can afford.
Set realistic goals, and you’ll find you’re much more likely to stick to your budget.
TIP #2: Invest time in financial planning – it will be your greatest investment ever
As life seems to get busier and busier, taking time out to review and plan your finances can be a hard thing to do, regardless of whether you have the assistance of a professional. Investing this time though is one of the best investments you will ever make – and it will save you time and money in the long run. Once you have your finances in place, they will, for the most part, take care of themselves – with a yearly review.
The prospect and process of creating a budget isn’t something most people enjoy. Change your mind set about what a budget means though, and it can actually be a very exciting process. Seeing what your projected savings will be at the end of the year, how much you would have paid off your mortgage, the interest you may saved, the assets you might own… It’s truly empowering and motivating. While enlisting the help of a financial planner is highly recommended, you can get started with the basics on your own – there are some fantastic free financial planning tools on the web these days.
TIP #3: Invest simply – understand what you’re investing in and why
The investment options available today are mind-boggling. Without fully understanding what each investment offers – the pros, cons and risks – it’s easy to get caught up in the latest investment fad and market hype.
When you’re just starting out, it’s especially important to take a simple approach so that you can easily understand what you’re getting into, the risks and the potential returns. It will make it easier to align your investment options with your financial goals.
The simplicity of residential property investment is why it’s still such a popular option for retail investors. That doesn’t mean that investment diversity isn’t important – a mix of property, shares and high interest savings – is generally a sensible approach and can be tailored further depending on your appetite for risk.
As you become more informed, you can look at more complex investments – as long as they align with your goals and risk comfort level.
TIP #4: Use the power of leverage – but know your limits
One of the great advantages of property investing is the ability to benefit from leverage or gearing – that is, borrowing to invest. Put simply, you use someone else’s money (the bank’s) to increase your profit and build wealth quicker. It means earning a profit on a $500,000 property, for example, while using only $100,000 (or less) of your own funds. As you build equity in your investment, you can then use this as a line of credit to borrow to invest again, further increasing your profits.
You can also borrow to invest in shares.
In our current tax system, borrowing to invest can also reduce your tax bill, as ongoing borrowing costs (interest and fees) are tax deductible. However, using leverage simply to reduce your tax bill isn’t a recommended strategy.
Remember though, just as leveraging can increase your gains, it can also amplify your losses. If the investment drops in value, you can end up owing the bank more than your assets are worth.
Consider the risks carefully and how much you can afford to lose if things went wrong. Then set a limit on your debt exposure.
Financial planning doesn’t need to be complicated. Keep it simple (at least in the beginning), keep it realistic, and admire your progress!
The 4 mistakes that made me a better Investor
As a young, inexperienced investor, I made my fair share of mistakes in the early years of my property investment journey. Sure, I’d read plenty of books, but with no personal mentor to guide me, I had little idea of what I was really in for when I began my ‘real life’ investing.
Making the mistakes I did and learning from those experiences provided the foundations of my investment coaching capabilities today. I’m now able to share my experiences with others so they can learn from them. However, my journey would have been a lot less painful had I the resources that are available to investors today!
After more than 10 years investing in property, these are my top four ‘Don’ts’ to avoid.
If you can avoid making these mistakes, you’ll find the path to reaching your goals much shorter and smoother!
DON’T buy with emotion
Among my first purchases was an amazing ocean side home. I had visited the property as a guest and was immediately taken with it. I said to myself that if it ever came up for sale, I would buy it, no matter what. Well it did. And I bought it – at well over the asking price. Straight away I had a severe case of buyer’s remorse. I hadn’t done any due diligence. I hadn’t done any number crunching. I had bought purely on emotion.
It’s essential that you treat investments for what they are – assets that are there to make you money. Completing thorough due diligence and calculating projected returns on every potential investment is the only way to minimise risk and maximise return.
DON’T fail to investigate the best structure for your investments
This is a common mistake to make and one that can cost you thousands in tax each year. It was a valuable lesson that, unfortunately, I learned the hard way!
Before you invest, you need to consider what legal structure will own the property. The most suitable structure will usually depend on your investment strategy – are you investing for tax minimisation, retirement planning, capital growth, cash flow? Are you looking to invest for the short term or long term? Are you building assets to pass on to family? Answering these questions and discussing with your accountant and/or financial advisor will ensure you structure your investments correctly from day one.
For example, positively geared property might be best held in a trust to minimise the tax you pay on the annual cash flow profit. Negatively geared property, on the other hand, might be best held in an individual’s name, which will allow you to claim the tax benefits (Please note: this should NOT be taken as financial advice. Please speak to your accountant or financial advisor to determine the best structure for your personal circumstances).
DON’T buy at the top of the market
For many investors, it’s easy to get caught up in the hype of a rising market. Many times I jumped into property in a market where prices had been rising for more than two to three years. This isn’t the best purchasing strategy if your looking for short term growth to help fund your growing portfolio.
Learn how to read the property clocks of the areas you’re interested in investing in to identify the market troughs and peaks. This will enable you to buy in at the low points to maximise returns, and help you to avoid buying in at the top when the capital growth curve is reaching its peak. You can watch my video blog here on property cycles.
DON’T over-leverage your portfolio
The ability to release equity from a portfolio to continue investing is one of the greatest wealth-building advantages property investment offers. However, this should not be undertaken without careful consideration. Refinancing loans to release funds can result in an increase in your interest payments. You need to consider whether you can service them!
After becoming comfortable and reaching a medium sized portfolio, I quickly diversified into coastal land sites and even a small subdivision. While exciting, these projects were very capital intensive and soon drew substantial funds from my portfolio as I released equity to develop. In some cases, I even lost money. This put strain on my serviceability and therefore my ability to grow the portfolio further. I was forced to sell a number of sites and projects to stabilise my portfolio before I could begin building it again.
DON’T get complacent
All investors can be guilty of this – myself included. Once you get comfortable with investing, it’s easy to get complacent. You forget about the impact of interest rates, forget about thorough due diligence, forget to review your portfolio regularly and fail to act swiftly in changing markets.
This is where it’s important to retain some of those qualities from your beginner investor years – the hunger and acute awareness! Experienced investors can easily fall into the complacency trap which can ultimately cost you your success. So stay keen, hungry and involved!
High Yield locations in Australia and where to find them
Below are my top three high yield location recommendations.
While these can change monthly, they have been and are currently performing and in my expert opinion, look like they will continue to perform well.
- Yield: up to 9% – 10% (units are currently attracting the best yields)
- Vacancy Rate: 1.9%
- Growth: Flat to negative
Source: RP Data, SQM Research
Cairns, the gateway to the Great Barrier Reef, should be back on investors’ radars following the announcement of the proposed $8.15 billion Aquis Great Barrier Reef Resort development in the northern end of the town.
Why invest: While the proposed Aquis resort development still requires some approvals before construction can begin, it’s already having an impact on the local market. The proposed 343ha development features eight hotels totalling 7500 rooms, two casinos, a golf course, shops, an aquarium, theatres and more.
According to plans, the first phase of construction will create 3,750 construction jobs and 11,000 operational jobs. The second stage will create 3,500 construction jobs and 9,000 operational roles. Its location is 13km north of Cairns, just outside Yorkeys Knob.
Top tip: While the suburbs closest to the proposed development have experienced a sudden surge in demand, the locations to look at now are those in the southern Cairns area where property is more affordable, while still benefitting from the project and producing decent yields. Suburbs such as Woree, where units are currently delivering 10% yield, have a number of schools and other local amenities, which add to the appeal. Once the Aquis project has final approval, the market is expected to take off in a big way and those seeking to maximise capital gains, as well as yield, will need to weigh up the risks and get in quick.
Risks: The obvious risk here is what will happen to the market in the event the Aquis project doesn’t receive final approval? Cairns has a robust tourism industry and purchasing in an area that is less reliant on the Aquis attraction as the main drawcard (such as those with schools) and with a large proportion of owner occupiers will help minimise any negative impact should the project not come to fruition.
- Yield: 8-10% (houses)
- Vacancy Rates: 6.1%
- Growth: -20% since 2011
Source: REIWA, SQM Research
Why invest: Despite having undergone a significant house price correction over the past two years, rental yields in Karratha have remained relatively strong, and well above the national average.
The drop in property prices is now providing investors with an ideal opportunity to access the market at the bottom of the current cycle ahead of expected upward swing as the population continues to grow and absorb current supply on the back of developing local & resource infrastructure projects over the coming 18 months..
Recent news that the development of Anketell Port is progressing through initial approvals should help further ignite the market and stimulate population growth once in full swing.
The WA government has unveiled a master plan for the multi-user, multi-commodity deepwater port which is to be located just 30km from Karratha. The plans would see Anketell have an eventual export capacity of more than 350 million tonnes a year. This would be more than double the total exports through the nearby Dampier Port and 20% larger than shipments at Port Hedland, placing it as Australia’s biggest export facility. The government estimates the project would create 4,000 construction jobs.
Major investment into civil infrastructure in Karratha is also underway to redevelop and revitalise the town and support the projected population increase.
Fundamentally, Karratha remains the service centre for Chevron’s Gorgon LNG project – Australia’s largest ever single resource natural gas project – and
Woodside’s Pluto LNG project – both which have lifespans of 40 years.
Top tip: Take advantage of the current low prices to maximise capital growth and secure a quality property that will appeal to the corporate leasing market.
Risks: Resource towns can experience higher volatility and relatively short market cycles, compared to capital cities. Investors should have a comprehensive strategy in place focused on investing for the medium to long term to ensure they’re financially prepared to withstand volatility periods.
- Yield: 9-12%
- Vacancy Rates: 3.7% and declining based on current trend
- Growth (1yr/3yrs/5yrs): -6.38%/16.79%/56.86%
Source: RP Data, SQM Research
Why invest: South Hedland is a major residential area forming part of the economic powerhouse that is Port Hedland. Port Hedland is now the largest bulk commodity port in Australia, used predominantly by iron ore giants BHP Billiton and Fortescue Metals Group. Both companies have invested billions over recent years to upgrade and expand port infrastructure to facilitate a ramp up of exports. The town’s next mega project – rail and port infrastructure for Gina Rinehart’s $10 billion Roy Hill iron ore project – is now underway.
Investment into civil infrastructure has also been significant in South Hedland. A new town centre, waterpark and sports stadium, among other projects, have all helped create a very desirable lifestyle and multiple commercial opportunities.
In just three years, Hedland’s economy has grown by more than 60% and the rapidly increasing workforce has resulted in a population surge. The town counts 20,000 residents today, rising around 30% in just five years.
Port activity remains strong with Roy Hill ramping up development of its rail and port infrastructure. Port expansions have also been flagged by both BHP and Roy Hill.
Top tip: The recent slump in house prices has provided good buying opportunities and has an opportunity to buy in low ahead of the next upswing. Whilst the town throughout the recent slowdown has continued to benefit from nation leading rental returns as high as 12% on large family homes.
Risks: Capital growth is likely to be slow in the short to medium term as the market moves through the current cycle. Investors should also take note of the current residential development pipeline which and avoid buying older properties in the town.
When is the right time to buy your next investment property?
Recently released data from the ABS showed property investment activity to be at an all time high in April with investor finance commitments for the month rising by 2.3% (seasonally-adjusted) to a new record high. Interestingly new investment figures were up by 30% over the year!
However, Post-budget, it seems a different trend is emerging with investor confidence in the market dwindling, according to initial findings by Digital Finance Analytics.
There’s now plenty of talk in the media of Australia’s property bubble and the prospect of a looming crash. Many investors are being scared off from investing in the current market and adopting the view that they should hold out to potentially bag themselves a bargain when the market hits its low.
Investors have been trying to perfectly time property market swings for decades and although highly lucrative if you get it right, its not always the most effective or efficient strategy to grow wealth through property investment!
The right time to buy your next investment property should not be dependent on the movements of the broader marketplace
In my experience the best time to buy your next property is as soon as you’re financially able to do so!
Waiting for your local market to bottom out on the assumption that you’ll secure the lowest price and the best deal, may end up costing you more than your realize in the long-term. Experienced investors understand that there are pockets of growth in many marketplaces around the country at any given time with rewards for those willing to find and secure a property in these locations.
Economists have long been predicting the old age story of doom and gloom heralding a major crash in the Australian marketplace. If the historical performance of property in the country is anything to hedge our bets on then yes, downturns and upswings will come around once every 8-10 years in capital cities and shorter periods general in regional locations. Waiting for the national market to reach its bottom before investing is a very difficult thing to pinpoint. Chances are, that by the time you hear from the property economists and researchers that it’s reached its bottom, prices are already on the up and you’ve missed your narrow window of opportunity.
One of my key recommendations to investors is: ‘don’t follow the pack’. There is no need to be at the mercy of the broader market. With the right advice, research and property selection, you will always profit, even during a national or state downturn.
Here are the five tips to determine whether you’re ready to invest again – regardless of the wider marketplace:
Step 1: Review your equity position.
Assess the current net value of your assets? Work this out by having your property or properties valued and then deducting the balances of your loans from the current values. Say, for example, you find your current investment property has increased by $150,000. You may then able to approach your lender and refinance your loan to release part of the equity.
Be mindful of a couple of things here. Your lender may conduct thier own valuation and given the conservative approach many lenders take to valuations, it may well come in below your original valuation. Your lender will also want to retain some equity, usually around 20%, so you may find that your original calculation of $150,000 equity has now reduced to say $100,000 based on the bank’s lower valuation and its need to retain some equity. If you want your equity to act as a 20% deposit, then your budget for your next investment property is $500,000.
Alternatively, you may have a deposit ready from cash savings, or you might be able to use a mix of cash and equity.
Step 2: Talk to your mortgage broker
Find out how much you can borrow. If you’re determined to use your cash/equity as deposit then that will set the amount your able to borrow.
Often when growing a portfolio quickly investors don’t want to wait until they have 20% deposit in equity, opting to grow faster by placing only 10% down against the new purchase., if you’re happy to put down less deposit and pay Lenders Mortgage Insurance, you may be able to borrow more which will allow you to purchase a better quality property. Tips on how to maximise your borrowing capacity can be found here and here.
Step 3: Determine your loan serviceability limit
It’s critical that you only borrow what you can afford – you must make sure that you’ll be able to service the loan payments.
If you’re pursuing a strategy of negative gearing, this is particularly important. You will need to work out the maximum you can afford to be out of pocket each month.
If you’re seeking a neutral or positively geared investment, you will be in a much more secure position. However, you still need to be confident that you’ll be able to service the loan should the rental market deteriorate or if interest rates rise – two factors that will negatively impact your cash flow.
Step 4: Set your budget
By this stage you should have a clear understanding on how much deposit you have and the maximum price you’re able to pay for your next investment (your borrowing capacity). You should also know how much you’re prepared to pay towards the interest on the loan each month (assuming an interest-only mortgage) which will determine the rental yield you need your next investment to generate.
Step 5: Property search and selection
Based on your strategy (negatively or positively geared), you’ll now be able to begin your property search, which will ultimately determine whether there is a good investment out there that fits your budget and loan serviceability.
I’ve written several blogs on how to indentify potential hotspots and how to undertake market assessment and property due diligence.
Also keep an eye out for next week’s blog where I’ll be looking at some of the best locations around the country for high yields.
Holidays – The perfect time to plan your next investment move!
Holiday downtime can provide the perfect opportunity to reassess your current investment position, conduct a portfolio and financial health check and plan your next investment move – putting you in the best position to maximise returns in the new year.
Portfolio health check
Take a no nonsense look at each property in your portfolio, how it’s performing and whether it could be improved.
Strategy – First, review your strategy and goals. If your portfolio is not currently meeting your objectives, establish a plan to realign and improve performance. If your portfolio is negatively geared, you may need to revise your approach to focus on positive cash flow investments so that you’re not left out of pocket in 2014. Or, you may need to consider properties that will deliver some instant equity if your portfolio has not been growing as rapidly as you had hoped.
Finance – Are your current products and lenders providing you with the most competitive interest rates and fees? If you’re not sure what you’re paying, request this information from your loan provider and then compare with other products available. Utilise comparison websites and mortgage calculators. If you find better deals elsewhere, use this information to have your broker renegotiate with your current lender first to assess whether they can offer better terms. If not, consider refinancing – it could make a significant impact on your return.
Tax planning – Start preparing your investment property records well ahead of the new financial year to ensure you’re maximising your interest and tax depreciation deductions, and you have recorded any costs that can be used against Capital Gains Tax should you decide to sell in the future. Your property manager is the best person to access and provide you with this information.
Also review with your accountant whether you are utilising the best form of property ownership for tax purposes and your personal circumstances.
Maintenance – Up-to-date maintenance is critical in attracting the right tenants and rent, which in turn maintains the value of your property. Your property manager will be able to tell you what maintenance should be prioritised. Plan out what needs to be done, particularly if a lease is due to expire.
Structure – Is your portfolio structured to facilitate fast growth? Having all properties tied up in a single structure can be a major disadvantage as it often reduces your borrowing capacity and the ability to find better deals with other providers. Consider separating new investments into standalone structures so that equity in each property is protected, enabling you to continue building your portfolio by using a line of credit against the properties which have generated equity.
Equity – Establish what equity your portfolio may have generated by having the properties re-appraised by your local real estate professional. Also consider how some aesthetic improvements or additions could create equity that would allow you to expand your portfolio. Talk to your mortgage broker. This will give you an idea of what you have to work with for your next investment.
Plan your next move!
Spend some time utilising the wealth of free online resources to identify locations which display all the signs of good yields and capital growth. Research key factors such as industrial growth, infrastructure investment and low vacancy rates which suggest a population on the increase.
Investigate specific investment opportunities in your target areas, looking at those close to key infrastructure that would appeal to high salary workers, and calculate the potential yield and growth. Create a shortlist of opportunities and questions you have for the agents and you’ll then be ready to hit the ground running in the new year, giving your portfolio a flying start to 2014.
Instant Equity ideal for first time investors – House & land packages
This third and final installment on ideal options for first time investors looks at house and land packages.
Over the past few years, house and land packages have become increasingly popular with investors as a way to enter the property market and kick-start portfolio development.
Many providers of house and land packages will partner with mortgage brokers to offer low deposit finance options. Vendor finance (covered in Part 2) may also be available.
Often, investors will only need a deposit of ten percent to secure a H&L package. The finance is then drawn down in stages, in line with each phase of construction.
On a $750,000 H&L package, for example, the finance would look something like this:
- land cost: $250,000 – deposit required of $25,000
- build cost: $500,000 – deposit required of $50,000, following settlement of land
- loan drawn down in stages over construction period (four to five months)
In addition to a low deposit, there are several other key advantages H&L packages can offer investors.
Instant equity. One of the greatest advantages of an H&L package is the instant equity that can be generated, allowing the investor to purchase again very quickly. Locking in construction and land prices through a fixed price contract means that in a rising market, any increase in the value of the property between when the contract was signed to completion and handover is to the benefit of the buyer. It is not unusual to see, following the typical five-month build time frame, that the completed property is worth an additional $100,000 over costs to construct, providing the investor with immediate funding ability to purchase another property.
Save on stamp duty. With H&L packages, stamp duty is only payable on the price of the land. On an established house, it’s payable on the cost of the land and the house. This can represent a saving of thousands of dollars.
Increased tenant appeal. The purchase of a house and land package also benefits the investor by offering a wide range of configuration choices – ideal if they are targeting the corporate leasing sector. For example, investors can add additional ensuites to the plan of the home, which will appeal to renters and significantly boost rental returns.
Low maintenance. A new property comes complete with a builder’s warranty and the additional benefit of low maintenance costs. Maintaining older homes can be quite expensive and they are less appealing to corporate tenants. A new home also offers attractive tax depreciation benefits that can significantly boost the property’s return.
With leverage and multiple property purchasing the key to building a successful portfolio, House & land package options can be the ideal selection for beginner investors starting with low deposit funds.
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.
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.
How will the election impact the property market?
Many investors are waiting eagerly to see what effect the federal election outcome will have on property markets throughout the country.
While there has been a boost to the market provided by low interest rates, investor confidence still remains at an all-time low in the lead up to the election; there is still a level of uncertainty around who will lead the next term and the effect it will have on the country’s economy.
Recently, research analysts RP Data and onthehouse.com released their separate findings on the market movements in capital cities following previous elections.
The findings provided some interesting insight as to what could be in store for the national housing market in the coming months.
RP Data found that Coalition election wins in 1998, 2001 and 2004 were all followed by increases in house values over the following 12 months.
The most recent two elections – 2007 and 2010, when Labor took power – saw house price fall over the following 12 months.
This doesn’t necessarily mean we should associate growth with a Coalition government – Labor had to deal with the GFC during the last two terms. House prices in capital cities have risen 4.9% in the 12 months to July this year, according to RP Data. With the election imminent, the market appears to be in a positive position.
Although the winning party is not yet a sure bet – based on the current interest rate environment, expectations point to housing markets continuing to strengthen amidst renewed consumer confidence and increase investor activity.
Seen once every four years, this pre-decision marketplace offers the savvy investor an ideal opportunity to secure the very best picks, whilst the majority sits on the fence.
Resource Town Investing – Risk VS Reward
Mining towns have undergone phenomenal growth over the past decade on the back of the resources boom. With investment levels in projects now softening, growth is returning to more sustainable rates.
Positive property yields in these towns remain at 9% upwards – still among the highest in the country – however, the market volatility has left some mining town investors concerned that their cash flow and capital growth is at risk.
Here are five things Resource Town investors should consider:
- Your property’s yield compared with the market
It is important to remember that falling rents in resource towns are coming down from high levels after a period of rapid – and unsustainable – growth. Even with median rents at lower levels, they are still generating extremely high yields relative to the rest of the market. Certainly, they are outperforming the national average which is currently around 4% for houses.
- Your yield compared with other income-generating investments
Compare your yield with that of other income generating assets. Average yields from stocks for example are currently around 4% or 5%, with the top dividend-yielding shares around 7-8%.
- Your capital growth versus the rest of the market and other investment options
Like rents, house prices have also softened in some mining towns, which are entering a period of correction after years of huge growth. Pilbara towns have outperformed the national market over the past decade returning 18% on average per year compared with the national average of around 6.5%. The share market has delivered around 5.5% growth pa on average over the last 10 years.
If you have enough equity in your current portfolio to purchase another property then consider using it to diversify. Any reduction in your cash flow stream as a result of reduced rent from another property can be offset by a smart investment into another high yield area.This also applies to capital growth. The current market is actually producing some excellent opportunities to maximize returns by buying in to recovering markets at lower values. Cash flow and capital growth is still very achievable if you do your research and seek the right advice. South Hedland and Newman have both maintained steady growth over the past 12 months and Moranbah is also recovering. As growth slows in some towns, it will skyrocket in others, where new industries, such as LNG, are moving to the forefront.
- Reviewing your property manager, interest rates and the tax benefits you are eligible for
All three can have a significant effect on your cash flow. A good property manager experienced in the local market will ensure you achieve the maximum rent and secure quality, long term tenants. Those that have established relationships with large corporates will also help minimize vacancy and negotiate the best possible rent.
With interest rates hitting record lows, there is also the option to refinance and reduce your interest payments, and taking advantage of all tax benefits available to you at tax time, such as depreciation, will also ensure you get the most out of your property.