The Final Word On Cash flow Vs. Capital Growth

There have been absolute volumes written on the subject of whether investment properties geared towards capital gains or cash flow are best.

The argument is founded on the long-held belief you can have either high rental return or huge value upside, but not both.

This opinion seems to have remained substantially unchallenged by academics and the media, and as much fun as it is watching the intellectual cage fight unfold, I believe there’s a simple answer to this question

I’ve bought and sold several hundred properties to date (personally and professionally) and I can say with confidence the idea you can’t have a balance of return and growth is just plain wrong.

 

The fallacy you’ve been fed

What’s sold to us as investors is that each potential property’s appeal has drivers that fall in favour of one side or the other.

For high cash flow holdings, it’s said they’ll be located in areas of high tenant demand. They will offer the ability to achieve more return per dollar outlaid in purchase because every possible square metre of space is being utilised for renter appeal.

They will be in locations where strong employment – particularly for transient workers with high paying jobs – will see renters fighting over the available stock.

It’s also said high yield property will often be located away from major capital cities and the majority of surrounding residents will not be homeowners.

Finally – many believe high cash flow properties rarely achieve decent capital gains.

For capital growth holdings, it’s believed these will be located in suburbs where homeowner demand is huge. Great schools, convenient shopping and ready access to a CBD is a must apparently.

According to this argument, capital growth property is best found in blue-chip inner-city locations. It will be unique in design and appeal which improves its scarcity factor. This sort of ‘limitation of supply’ supposedly translates into stronger growth.

Classic blue-chip holdings are deemed to be detached houses in high price addresses that avoid secondary fundamentals such as busy road frontages or undesirable neighbours like service stations.

 

The risks of each

Both approaches to investing have their benefits and flaws.

High cash flow is great if your available funds for investing are limited. The high yield will help you service the loan and stay ahead of repayments.

The downside is, as a gross generalisation, high yield does not create the sort of long-term returns that help investors achieve real wealth. It may put you into a comfortable position, but the capital value upside is limited.

In addition, if you buy high yield in a regional centre that relies on a limited economic base of, say, one major employer, they can be risky. Ask anyone who was enjoying their seven-plus per cent yield in one of Queensland’s mining centres a few years back, but held out for more. They’re in a world of hurt now.

With high growth, the long-term upside is excellent. It’s a passive way to build extraordinary wealth, because if you hold $1 million-dollar property in a location where values go up by six per cent per year on average, then in year one alone you will have likely gained $60,000. High growth also works with the magic of compounding which sees exponential value rises over a long time. The longer you hold it, the wealthier you’ll be.

There is a downside however. High growth, blue chip usually costs more to acquire and many investors will overextend themselves to become landlords. In addition, the relatively low yield will not assist all that much in servicing the loan. High-growth investors need to be super careful. A rise in interest rates or unexpected job loss can be devastating.

 

The solution

To me, the answer is simple.

I believe you must first determine what you can afford to pay and where the best growth potential locations are for your price point.

Next, I think you should look at property types within your location that will appeal to the local renter base. For example, If the most tenants are students, don’t look for a home with high-end finishes and plenty of family space. Seek a practical layout with the potential for privacy. Perhaps you will find a duplex or triplex in this growth zone?

If you can achieve the best possible yield in a growth locations, it buys you time in the market… and time is your friend.

Look for property that has a future twist too. Something that could be a renovatable home or re-developable block that will generate additional equity down the track.

 

These properties do exist, but it takes a lot of effort and analysis to locate them. This is what we do as a specialist buyers’ agent and property investment advisor. If you feel overwhelmed and out of your depth, then talk to us. We can strike the right balance with your next purchase.

 

Happy hunting.

The post The Final Word On Cash flow Vs. Capital Growth appeared first on Pure Property Investment.

The Final Word On Cash flow Vs. Capital Growth

There have been absolute volumes written on the subject of whether investment properties geared towards capital gains or cash flow are best.

The argument is founded on the long-held belief you can have either high rental return or huge value upside, but not both.

This opinion seems to have remained substantially unchallenged by academics and the media, and as much fun as it is watching the intellectual cage fight unfold, I believe there’s a simple answer to this question

I’ve bought and sold several hundred properties to date (personally and professionally) and I can say with confidence the idea you can’t have a balance of return and growth is just plain wrong.

 

The fallacy you’ve been fed

What’s sold to us as investors is that each potential property’s appeal has drivers that fall in favour of one side or the other.

For high cash flow holdings, it’s said they’ll be located in areas of high tenant demand. They will offer the ability to achieve more return per dollar outlaid in purchase because every possible square metre of space is being utilised for renter appeal.

They will be in locations where strong employment – particularly for transient workers with high paying jobs – will see renters fighting over the available stock.

It’s also said high yield property will often be located away from major capital cities and the majority of surrounding residents will not be homeowners.

Finally – many believe high cash flow properties rarely achieve decent capital gains.

For capital growth holdings, it’s believed these will be located in suburbs where homeowner demand is huge. Great schools, convenient shopping and ready access to a CBD is a must apparently.

According to this argument, capital growth property is best found in blue-chip inner-city locations. It will be unique in design and appeal which improves its scarcity factor. This sort of ‘limitation of supply’ supposedly translates into stronger growth.

Classic blue-chip holdings are deemed to be detached houses in high price addresses that avoid secondary fundamentals such as busy road frontages or undesirable neighbours like service stations.

 

The risks of each

Both approaches to investing have their benefits and flaws.

High cash flow is great if your available funds for investing are limited. The high yield will help you service the loan and stay ahead of repayments.

The downside is, as a gross generalisation, high yield does not create the sort of long-term returns that help investors achieve real wealth. It may put you into a comfortable position, but the capital value upside is limited.

In addition, if you buy high yield in a regional centre that relies on a limited economic base of, say, one major employer, they can be risky. Ask anyone who was enjoying their seven-plus per cent yield in one of Queensland’s mining centres a few years back, but held out for more. They’re in a world of hurt now.

With high growth, the long-term upside is excellent. It’s a passive way to build extraordinary wealth, because if you hold $1 million-dollar property in a location where values go up by six per cent per year on average, then in year one alone you will have likely gained $60,000. High growth also works with the magic of compounding which sees exponential value rises over a long time. The longer you hold it, the wealthier you’ll be.

There is a downside however. High growth, blue chip usually costs more to acquire and many investors will overextend themselves to become landlords. In addition, the relatively low yield will not assist all that much in servicing the loan. High-growth investors need to be super careful. A rise in interest rates or unexpected job loss can be devastating.

 

The solution

To me, the answer is simple.

I believe you must first determine what you can afford to pay and where the best growth potential locations are for your price point.

Next, I think you should look at property types within your location that will appeal to the local renter base. For example, If the most tenants are students, don’t look for a home with high-end finishes and plenty of family space. Seek a practical layout with the potential for privacy. Perhaps you will find a duplex or triplex in this growth zone?

If you can achieve the best possible yield in a growth locations, it buys you time in the market… and time is your friend.

Look for property that has a future twist too. Something that could be a renovatable home or re-developable block that will generate additional equity down the track.

 

These properties do exist, but it takes a lot of effort and analysis to locate them. This is what we do as a specialist buyers’ agent and property investment advisor. If you feel overwhelmed and out of your depth, then talk to us. We can strike the right balance with your next purchase.

 

Happy hunting.

The post The Final Word On Cash flow Vs. Capital Growth appeared first on Pure Property Investment.

Is The Wollongong and South Coast Market Slowing Like Sydney Did?

South and north of the Sydney market where the opportunities are down from Wollongong, further down the south coast, central coast and Newcastle and beyond. They’re probably about 6 to 12, sometimes 18 months beyond where we are as cycle wise. You know Wollongong grew about five and a half percent. Newcastle grew about seven or eight percent last year or this past 12 months, but they’re on a downward trajectory, so I expect them to probably be with Sydney’s and about six to 12 months and they’ll probably be in that position longer than what Sydney will be because the jobs are still going to be focused around the Sydney CBD.

The post Is The Wollongong and South Coast Market Slowing Like Sydney Did? appeared first on Pure Property Investment.

One Bedroom Apartments in Sydney. Are They Worth It?

One bedroom apartments as an example where a one bedroom apartment sitting as part of this grand scheme will probably that later. Part of that answer is there’s a lot of construction going on. The apartment space, there is still certain pockets in probably more the established areas with minimal amounts of available stock in the newest space that one bedroom apartments will do. Okay, and I’d probably more refer to those walkups red bricks in really the quite strategic areas that are walking distance to all amenities and probably more preferential to baby boomers downsizing and that’s probably the other components are really oversized luxury one bedders in certain areas where again, there’s limited available stock, but the problem with both of those is right now and in the Sydney market is that yields a pretty, pretty terrible. So to hold them cash flow wise is going to be a big stretch for me to justify that over two dozen different markets across Australia right now. I would never ever be able to justify that in this point in time.

The post One Bedroom Apartments in Sydney. Are They Worth It? appeared first on Pure Property Investment.

Renting Vs. Buying. The Debate

It’s a fascinating question for me because I look at the say I’m a longterm renter and I think a lot of people in this day and age are okay with longterm renting. The fascination with wanting to own is something that’s always going to be completely individual and I think that’s the part of the question there to say if you have to own physically to feel like you have succeeded or if that you feel like you’re secure. Yeah, that and you can raise a family and that’s what you need. Then I would say if that’s always going to be the fear, I’ll I will would deem that there’s probably always going to be a bit of confirmation bias that you always think it’s going to be better to buy than to rent and it comes down to what is your mindset? Are you comfortable never owning where you live, but still creating wealth elsewhere?

So fundamentally you can do so many predictable algorithms to say; I’ve got x amount of growth. If interest rates stayed here, if I went on a principle interest repayment of this year, then it’s going to lend. Then therefore say that my spreadsheet will tell me that this is the best time to start thinking about buying or selling or continue renting or vice versa, but I think that you could do that to the cows come home and you could stress yourself out and you could run through a million scenarios and you can basically get to different outcomes every time. For me it more comes down to what is the really, what is your passion and where does the fundamental need lie here and if you can get past the deemed yeah, I guess social pressures of owning your own home and knowing that your creating wealth and setting up your future, your family’s future and other markets.

Then those discussions kind of become redundant, so if you can’t, then for me it comes down to saying, I’d say jump in as soon as you potentially can afford to jump in because what will end up happening is you become disappointed in the fact that you didn’t buy when you should’ve bought and you’ll always find a reason and you’ll always second guess your decisions and 100 percent and you say it so often. You see so very, very often and typically what Lisa to people doing nothing. And that is usually the worst scenario. I’ve got actually quite a number of clients who I’ve been speaking with for almost, you know, some of them I can think of two or three years and we’re in. We’re at ground zero still and they’ve had capacity to start investing a long, long time ago and it’s not even one market. Now. We’ve talked about buying one market. Now we’ve stopped buying in that market because the growth has come. Now we’re in a different market and they’ve not chosen to buy in that market because they thought, well, well I’m just gonna. Hold out for this market and the pattern is obvious and I think ultimately comes down action and letting perfection get in the way of profit is always going to be the drama for most in that position.

The post Renting Vs. Buying. The Debate appeared first on Pure Property Investment.

Sydney’s Future. Will It Perform As Well As It Did In 2013-2015?

Where we’re at right now in Sydney and and look, we’re probably into our 11th, 12th, 13th month depending on what suburb you’re looking at, have a probably categorized sideways if not some declines in certain markets in Sydney and to what, to be honest, Melbourne’s only probably six months behind the same trend and we expect them to run more or less pretty similar correlations over the of the forthcoming cycle. We’ve got a big issue with a income to debt ratio and we’re sitting anywhere between eight and 10 times annual income to debt ratio. Historically we see that needs to be sitting well below probably six, six and a half times to see opportunity to grow. That’s part of that equation is wages growth. We don’t have an issue with with jobs at the moment and I don’t think over the next five years in Sydney specifically, especially in some of these really big infrastructure project corridors from the southwest to the west and even part of the up, the guts through in a west, et cetera.

There’s jobs, jobs galore and well paid jobs, white collar, blue collar, right across the board, skilled and unskilled. So I think the jobs are going to be there. The issue is affordability in conjunction with people being able to borrow money. So I think we need two things to start seeing this wave come back is one of which is wage growth, to see that debt debt to income ratio reduce. And the second, I think the second one is probably going to be that there’s going to have to be a restricted amount of supply consistently given to the market because we’re also going through this apartment building boom in Sydney is not a probably, i would say, they’re not going to be spared in certain areas. It’s not right across the board. We’ve got a lot of population growth, but we’re also got alot of construction. So I think we’re probably three to four years for those apartments really going through the market and then getting back to probably what I would deem to be an elite and an equilibrium position where you’ve got a deficit which we had for the previous 10 years in addition to a ramp up of wage growth and then cheaper money.

The post Sydney’s Future. Will It Perform As Well As It Did In 2013-2015? appeared first on Pure Property Investment.

Changes In The Funding Environment And The Investor Approach

 

I think there’s a lot of property investors as well as potentially other property investment strategists who have had certain modus operandi over the last 10 years which worked in certain cases. But when you start to get a changing environment in funding and in growth and in yields, you can’t just keep running the same race because unfortunately the different competitor and you’ve got to change.

The post Changes In The Funding Environment And The Investor Approach appeared first on Pure Property Investment.

1241

[contact-form-7]

Capital Growth And Saving To Buy Back In Sydney

The post Capital Growth And Saving To Buy Back In Sydney appeared first on Pure Property Investment.

It’s All About The Investor

The property investment advisory industry offers up a diverse range of personalities and marketing styles. Some advisors are self-made success stories who build their business profile on the back of long fought and hard-won experience. There are also the ‘altruistic’ types who want to genuinely educate the investor community on the ways real estate can set you up for a comfortable future life. There’s also, unfortunately, opportunists among the ranks who’re motivated primarily by generate their commissions and taking kickbacks.

I sit on the board of the Property Investment Professionals of Australia (PIPA) which is an organisation pushing hard to regulate these sharks away from vulnerable investors. Unfortunately, it’s a big industry and there’s only so much we can do at the moment, so responsibility for avoiding the shysters falls heavily on the shoulders of investors themselves. When you get an opportunity to talk to advisors, I urge you to consider a particular gauge which has served me well in the past.

If someone tells you they’ve discovered THE magic strategy that guarantees success to any investors, I suggest you run away quickly and not look back. Because, in my experience, property selection is about the individual investor, not the investment strategy.

 

A Bad Fit

The process of building a successful property portfolio doesn’t follow the same path for every single investor, because the important metrics of what to invest, where to invest and the expected outcomes vary between individuals. If making gains in real estate were as easy as one-size-fits-all, we’d all be retired by 30 and taking our private jet to the Maldives.

There are pros and cons to almost every sort of investment approach depending on the stage you’re at in your real estate journey. I’ve seen books which create the illusion that you can build a huge multi-property portfolio by adopting a singular approach. ‘Just buy new duplexes’ or ‘Only look for unapproved development sites’ or ‘Never buy new units’ or ‘Always but new units’… the list of contradictions seems endless.

In truth, most strategies have a mix pros and cons when it comes to things like yield, value gains, tax advantages, development profits and so on.

My opinion is it’s not the investment, but the investor that matters.

 

Begin With A Plan

When you start out in property investment, your guidelines on that first purchase will be set by a frank and fearless assessment of your financial position.

You need to know your number on your available cash flow and how much the bank will lend you. This is where a talented, experienced mortgage broker really comes to the fore.

Now, sometimes your start in your 20’s with no dependants and a modest wage. This type of investor may need to consider a slightly higher yield to help service the debt, but they have time on their side and can afford to wait for long-term capital gains. They’re probably going to see their wages rise in the future which will boost their borrowing power. No need to chase blue-chip just yet I’d have thought.

What if you’re starting in your 30’s? You might have paid down some home loan – not much but enough for a deposit on an investment. Alternatively, you may have actually been renting for a while now and don’t want to move – perhaps rentvesting is going to be part of your plan. You might be in a serious relationship but finances aren’t yet combined. Perhaps you still need some decent yield but can do a little renovation too. A middle ring character home might suit your style.

In your 40’s your wages are starting to look very healthy and you might decide on a little tax planning and depreciation benefits as part of your considerations. There could be two incomes in the house, but young kids with schooling costs to allow for – how is that affecting your cash flow? Is there the chance to look at doing a small development project so you can realise a decent profit for future investing? Is a joint venture on the cards?

Heading toward retirement years, you might want to reduce debt but also acquire higher yields to pay for that long planned around-Australia trip? You don’t want the high stress of managing a portfolio either, so simplified investing away from the rigours of development would be essential. You might even look toward locking down a commercial holding at this stage.

 

The Long Game

My point is that the idea just one strategy or property type is the gold-standard for success is ludicrous. Rigid adherence to one style of investing is reckless and inefficient.

Property investing toward a desired goal is an active pursuit that has you following a plan but retaining the ability to pivot as life’s circumstances alter. It’s how opportunities are captured and returns maximised… and diversity in your strategy is sure to be a result.

Happy hunting.

The post It’s All About The Investor appeared first on Pure Property Investment.

Evolutionary Investing

There a really cool graphic called “The evolution of man” that I want you to recall. It’s the one which tracks our species progressive elevation from slack-shouldered apes to majestically-upright homo sapiens.

I’ve often seen this picture and thought about how this Darwinian theory really does apply to all sorts of life’s element… including investing.

I thought it was time somebody told the story about the evolution of the investor – with their tongue placed firmly in their cheek – why not me?

By the way – to enjoy the full force of what I’m offering, you really should read this blog with David Attenborough’s voice narrating in your head…

 

And so, it begins…

First time investors have similar needs. They’re eager and engaged – even playful – quick to learn and keen to become part of the pack.

First timers are generally inexperienced and will require both guidance and understanding from more seasoned members of their community.

For the first timer, simple initial steps into the property jungle are necessary.

These novices often need to watch their finance position, and require an opportunity to establish their credentials as a reliable borrower before they can move up the pecking order.

Property-wise, it should be nothing too complex. A well-located unit or house with a solid potential renter base and above average yield is their best environment – with great long-term upside in value an absolute must.

Rental returns should be strong to allow some income buffer straight away. In addition, a holding with some opportunity to improve value through renovation or future small development is always handy.

 

Emerging from the trees

As they graduate beyond this initial holding, the investor will look to become more adventurous.

Armed with the practical knowledge of how to locate, negotiate, secure and maintain that first investment, the second-property buyer will look to replicate their success. They may choose to stay close to their comfort zone, picking similar properties to the first, but all with a view of doubling or tripling their outcomes.

Their position in the investment lexicon now established, they occupy a thrilling space in the sector where the possibilities seem endless.

 

Straightening up

With a few runs under their belt, the investor will begin to seek more adventure with their holdings and look to acquire bricks and mortar with a bigger potential twist.

These are properties where, with a little imagination, they can make some impressive additional dollars. Expect this more experienced species to seek larger blocks with long-term redevelopment potential, or units in small complexes where the Gross Floor Area is being underutilised.

These more experienced investors have a distinct financial advantage over their often-younger, less experienced counterparts. They have battled for their financial supremacy and, as victors, now have their choice of the most fertile property options.

 

Leading the pack

Given their years spent navigating the nuances and hurdles around basic property investment, the next genome of investor will be keen to get their hands dirty and blaze a path to success that other might follow.

Small development projects will fall within their spectrum as they gain proficiencies in splitter block, speculative home ventures and even unit and townhouse projects.

The savviest and well planned among them will have bought smart in the early part of their investment journey. For these forward-thinking investors, looking back at a well purchased initial holding will reveal a potential development prospect they can now turn to profit.

These kings and queens of the property jungle will also seek new frontiers in finance, often building on an already established symbiotic relationship with a mortgage broker to help guide them past the pitfalls of unearthing development funding.

 

Species Crossover

Perhaps the most exciting stage for any investor is when they break free of their current community and venture even further into the complex but profitable realms that sit beyond the simple residential space.

These investors will look to make their mark, often beginning with a simple industrial shed holding, but also capable of growing toward larger scale office and retail deals if the funds allow.

For some, it’s impossible to say goodbye to the sector that’s served them so well. As such, some find a compromise in advanced residential options and look to acquire a block of flats, or even decide on a joint venture arrangement to try their hand at multi-level unit schemes.

They may even choose to experiment with structure, using funds from their superannuation or family trust structure to maximise their outcomes.

 

Throughout the journey, the investor evolves along with their property portfolio, but always with the long-term in mind.

The best investors help elevate their community as a whole, providing a beacon of success for others to follow.

When you next come across one of these investors in their natural habitat, take time to observe how they make the most of their surroundings. You might learn something useful.

Happy hunting!

Paul “Attenborough” Glossop

The post Evolutionary Investing appeared first on Pure Property Investment.

The Two Biggest Lessons In Real Estate Investment

When talking to first time investors there are multiple misconceptions to address and numerous lessons to teach.

I’m about to reveal the two biggest concepts that propel average real estate owners from being dabblers into forging a life where their free time isn’t eroded by earning a steady wage.

They are fundamental instructions that not everyone understands straight away. Really grasping onto these will ensure you can forge your path and stay the course – even when the challenges of property investment have you feeling like you might come undone, cut your losses and chuck it in.

These are the facets that will help you, ‘remember to breath’ (more about that later).

 

Lesson 1: Get rich slow

Talk to a group of buyers who were fortunate enough to acquire a good-quality holding in Sydney between 2009 and 2012.

Now, a percentage of those are experienced souls who have been at this game for a while. They’ve seen the ups, downs and sideward of the market and realise quick bursts of capital growth can be followed by extended periods of flat performance.

Unfortunately, among you the surveyed crowd, there will also be plenty of others for who this period of growth was their first. They’ll be applauding their ‘clever strategic approach’ and congratulating themselves on having superior research skills. These are usually first- or second-time landlords who got in at the right moment and have seen their property’s value rise by 50 per cent to 70 per cent in a short period. This crew is unfortunate because their psyche is now ingrained with the opinion that making money in real estate is both easy and fast.

Recent value gains in our biggest capital city have been extraordinary and profitable, but don’t for one minute believe they are the norm. Annual growth in the double digits is a brilliant thing if you buy early, but serious wealth comes from long term investing.

The dangers are real. I’ve heard of a number of investors without guidance who adopt the mantra “Buy, refinance, buy, refinance, buy, refinance…” with scant regards to their financial resilience, the market they’re in and the cycle stage it occupies. Markets turn (as you’ve no doubt noticed) and those who overextend their finance to keep riding this one-way ladder will find once they run out of rungs there is only a single way down – and it’s hard and fast.

In my experience, you must hold a property for an absolute minimum of ten years before you start to see established value growth… and this is a minimum.

Take a look at Brisbane. It’s a market with exceptionally good fundamentals including affordability and lifestyle, plus economic and population growth. Since 2008, Brisbane property has put in one of it’s least impressive decade-long performances in memory. During that time, there will have been those who speculated on a purchase only to sell within five years because the gains weren’t as good as Sydney or Melbourne. What an error to make.

Despite the perceived lukewarm market over those 10 years, Brisbane has seen median price growth of almost 40 per cent. While that may not sound extraordinary, it was during a time when a major flood event occurred, and the fallout of the post mining boom hit property prices.

So, despite the troubles, Brisbane investor who’ve waited are still well ahead … and best of all, the fundamentals look extraordinarily good for the next few years.

 

Lesson 2: Compound wealth

This is, without doubt, one of the single greatest financial lessons new investors can add to the quiver of learnings.

Compound growth builds phenomenal financial outcomes. There are two elements to remember here.

Firstly, by holding a property over the long term, you are effectively reinvesting the equity to build more value. Let’s use a simple, super-conservative example.

If you buy a property today for $500,000 in an area growing by a very modest average of five per cent a year, that doesn’t mean you will make $25,000 per year over the next ten years. Compound growth recognises that you will be ‘reinvesting’ that $25,000 from the first year so you will now be holding an asset worth $525,000 that will grow another five per cent in year two.

You now own an asset worth $551,240 that will grow again by five per cent. See where we’re going here? I’ve done the decade-long numbers for you.

If you were just making a five per cent non-compounded gain of $25,000 a year on your $500,000 investment, at the end of 10 years your holding is worth $750,000. But if you allow for the ‘reinvestment’ value of compounding, those same figures will see that asset be worth $814,447. That’s a compounding bonus of almost $65,000 in an underperforming market for doing very little.

The second element of compound growth is even better, because you add to that the boost of holding multiple properties AND being more strategic in your purchases. If you owned a portfolio valued at $3 million, and its compounding under the same modest rules above, in 10 years it will be worth $4,886,684 – an almost $1.9 million gain. That’s a pretty handy chunk of change.

Now imagine you are holding these properties through two or three of these cycles. The potential for upside is mind blowing. For well informed and highly diversified investors, there is also the chance to buy at the right stage in the cycle by not limiting yourself to one location but looking nationwide.

I realise there are variables and nuances in real life that need to be tackled, but for this exercise it’s important to be aware of why long-term strategic investment yields extraordinary results.

 

Why these lessons are crucial?

Armed with this knowledge, a savvy investor knows how to take a long-term view of their portfolio especially when things look dire. As I like to say… Remember to breath!

When you hit a bump in the road, stop, gather your thoughts and concentrate on the long game strategy. You are not in this for the short haul, but rather to reap the rewards in decades to come.

Markets rise slowly, growth compounds and, in the end if you stay the course, you will be looking back on your decision to remain in the game as one of the wisest moves of your life.

Just remember to breath.

Happy hunting.

The post The Two Biggest Lessons In Real Estate Investment appeared first on Pure Property Investment.

Why Property Is A Game Of Finance

 

 

 

 

 

 

Real estate investment can seem like a complex beast. Ask anyone who has done the deep dive into gaining a property education and you might find they became lost in the wilderness of information, struggling to find a path through the thickets of data and analysis.

But there’s one facet of investment that is arguable one of the most crucial and least understood when you’re first learning about bricks and mortar – particularly as this element can make or break your future. It can keep plans on track, or have them derailed and careening towards almost certain disaster.

In the rule book of real estate, property really is a game of finance.

 

Why the numbers matter

Before you even open your first book about real estate or begin a google search of property forums, the very first set of analysis all investors must undertake is to determine their ability to borrow funds and service loans.

It makes no sense to disappear down the rabbit hole of research if you can’t gather the dollars.

So, your financial capacity is the determining factor.

First and foremost, run your household budget and do your spreadsheet of assets and liabilities.

Preferably tackle these exercises under the watchful guidance of a mortgage broker who has experience in the investment field.

By setting out these salient figures, an investor can work out if they can afford a loan and, if so, how much they are able to invest. It makes no sense to be all over the property portals trying to find excellent options in Bondi Beach, Sydney if you budget only extends to Coopers Plains, Brisbane.

Your time is valuable. I’ve seen potential investors become exhausted by the options because they lose themselves in information about locations, price points and market sectors that are, frankly, well beyond their financial capability.

Save yourself the stress and do your finances first.

 

Prepare to succeed

Once you’ve gone through the exhaustive exercise of finance, you have a distinct advantage over others when it comes to jumping on unexpected opportunities.

Getting finance approved can be a struggle, but once you’ve done the hard yards you’ll have cleared a hurdle that allows you to take the driver’s seat when securing a property.

One of the best aspects of using a buyers’ agent is our ability to secure off-market deals for clients. Many times, these come across our desk because of the relationships we’ve formed with agents in our areas of interest. They will have a holding where the owner is keen to sell and will take a discount to avoid wasting time.

When a deal is presented before it hits the market, and it meets all the criteria of a great option, you want to move fast to lock it down.

Being finance ready gives you, the buyer, that comfort. You can go in with a cash offer knowing the bank has already approved you for a loan.

It’s one of the best way to profit from property, because that discount means you have a little extra equity in the holding right from the get go.

 

Two top tips

When it comes to finance there are two key mistakes many investors make when they aren’t operating under the guidance of experienced advisors.

One – they forget to factor in life’s big financial events.

If you go all-guns-blazing into a 30 years strategy based purely on your current position, there can be grief to come.

You need to make plans so as to afford and enjoy life outside of the investment loan. If the kids are due to head off to private school soon, this must be factored in to your figures. If you and your spouse are thinking about starting a business in the next two years – congrats, but your family’s cash flow could be running dry for a stretch.

Life keeps moving – make sure you mitigate the pain by doing a proper job of allowing for future events.

My second tip is to expect the unexpected.

Interest rates can change, rental demand can drop and even the best of us can be out of work. While these unfortunate events might be beyond your control, there is a way to soften the blow via your finance.

Buffers should be an essential element of your financial process. You must factor in tolerances – particularly with your cash flow – so that should the worst happen, you’ll be ready to address the shortfalls.

I believe smart investor will ensure they can service at least six months of essential operating costs including household’s expenses and loans. Kept in an offset account against your PPOR, your buffer will provide the benefit of a reduced interest, but still be liquid funds on hand to keep you financially afloat if needed.

 

Budget smudget

While I’m all for being across the numbers from a finance perspective, I also don’t believe in having your lifestyle hamstrung by a strict home budget once you’ve got your processes up and running.

In my opinion, most well-informed households that set up an initial financial plan grow accustomed to their essential spending and, in time, find that they don’t need to strictly account for every dollar just to stay ahead.

Get smart with your figures and you’ll eventually and automatically be able to manage your wallet without having to check the spreadsheet each day.

 

Seek professional help

Tackling finance early means you understand where the line in the sand sits when it comes to purchase price and rental return on your investment property.

With these important numbers in your grasp you can begin to research investment options that fall within your financial capabilities.

I believe the best move you can make is to surround yourself with trustworthy, experienced advisors such as a mortgage broker, property investment advisor and buyers’ agent who can guide you safely through the landscape of investing and finance. These folks are essential members of the dream team that’ll reduce your risks and boost your outcome.

Happy hunting!

The post Why Property Is A Game Of Finance appeared first on Pure Property Investment.

Outstanding investment secured, $248,000pp, $15,000 below comparable sales, 15min from CBD

Another outstanding investment secured, $248,000pp, $15,000 below comparable sales, 15min from CBD

– $248,000 purchase price 
– $310pw rent
– 3 bed house on flat block walking distance to local amenities 
– 6.5% gross yield
– North Hobart

Pure Property Investment aligns finance, conveyancers, building and pest inspections, property management, depreciation schedules and necessary insurance to ensure you maximise your cash flow and minimise the time spent researching and organising.

Call us on: 1300985428

Email:enquiry@purepropertyinvestment.com

Web:www.purepropertyinvestment.com

**All information published has been collated from third parties and provided in good faith. No representation is given or implied as to its accuracy or interpretation. Please ensure you rely on your own research before making any investment decisions**

You might like to check out our highly popular TOP 50 SUBURBS report (ABSOLUTELY FREE). Download here https://goo.gl/Oi2iey

The post Outstanding investment secured, $248,000pp, $15,000 below comparable sales, 15min from CBD appeared first on Pure Property Investment.

Six-point Solution To Conquer Investment Fear

 

 

 

 

 

 

 

One of the truisms of investing is that despite applying strategic planning and due diligence to reduce the risks, your best laid plans will likely go astray at some point.

According to the 2016 census, of the 2,097,392 Australians who invested in property, approximately 71 per cent (1.49 million) owned just one holding, while those that built a life-changing portfolio of six or more made up just one per cent – or 19,967 – of the pool.

Most buyers begin investing with the intention of owning multiple assets, but more often than not, a hiccough in the process causes their resolve to falter. They can’t see past the problem, so decide it’s all too hard and give up.

All investors hit hurdles capable of derailing their journey. But rather than letting a roadblock ruin your plans, think of these challenges as opportunities to learn and move forward.

Here’s a six-point strategy that will help any investor avoid being overwhelmed by problems, so they don’t throw in the towel and give up for ever.

 

1. Strategise one step at a time

This part of the process begins early. After you’ve defined your goals and wants, and plotted a general course to help you get from A to B, it’s time to get down to the nitty gritty.

Try and apply your current knowledge, via the guidance of an experienced professional, to consider what your investment journey will look like in some detail. Think about the number and types of investments you’ll need over a defined time frame to achieve your dreams.

Breaking down the big journey into small, achievable steps prepares you for tackling problems.

Just know that a stepping stone hiccup, like one bad tenant, is a singular stumble, not a total derail.

 

2. Flexibility is key

While defining your plan helps set up the path to success, remember agile investors tend to triumph.

Those who can pivot away from their plans when needed and without too much stress can take advantage of unexpected opportunity.

Similarly, those who are flexible can find solutions to problems that might stifle others.

Let’s assume your holding has been vacant for far too long. Perhaps rents have softened and you need to lower your price? If so, do it. Don’t falter.

Have you had a bad run of tenants over the past two years? Your property manager mightn’t be doing their job, so be prepared to change.

Be prepared to cut, run and shift so you come out stronger than ever.

 

3. Trust your buffers

The cost of owning and maintaining and investment isn’t linear. You will be flush with cash one month, and running on empty the next.

The key to survival is buffers.

Make sure you carry a buffer of available funds in an offset facility so you can cope with the whims of cash flow. This means putting a little away every cycle to cover the unexpected.

Being able to draw against this if an emergency arises is a godsend. Say it’s summer and the hot water system breaks down the same week as the air conditioner. You can safely draw on the buffer, knowing it will replenish itself as the year continues to progress, because you’ve allowed for this in your annual cash flow calculations.

Like most things in property investing, the long-term helps smooth out the bumps.

 

4. Zoom approach to sanity

Dealing with unexpected forces requires a ‘Zoom-in, zoom-out, zoom-in’ process.

Let’s say you’ve purchased a property and prepared your maintenance budgets for the coming year. All is going swimmingly until six-months in when an undetectable tree root blocks a drainage point and the subsequent flood requires a major spend.

What are you going to do? This year’s planned-for expenses are about to be soaked up in one repair!

Your first move will be to ‘zoom in’ and recognise the problem. The key is not to become overwhelmed at this point – although it’s not always easy. Your initial reaction might be to sell up and get the hell out! Suddenly this one small issue gives too much credit to the naysayers, and it’s at this point where many first-time investors give up on their property dreams.

My advice here is to understand your reaction and responses are normal, but can be overcome. Just simply ‘recognise’ the problem at this stage and don’t react too fast.

The next step is less intuitive. I recommend you now ‘zoom out’. Revisit your long-term goals and strategy. Check where you are in the journey and think about how this property fits into your plan. In the 10 to 15-year property cycle, isn’t this extra cost just a minor setback on a long and winding road? Won’t this problem be temporary? Isn’t your strategic purchase of this property for its capital gain and future development potential? Isn’t it worth holding on to?

This is where we ‘zoom in’ again and anlyse your options. Think about the extent of the repair realistically. Will your financial buffers carry you through? Do you need some strategic help from your advisor on formulating a way to cover this cost in the short term, so you can still enjoy the long-term payoff?

I’ve found that most hurdles can be cleared once you get into the habit of recognising an issue (zoom in), revisiting your goals (zoom out) and analysing your options (zoom in).

 

5. Regular reassessment

If you want to avoid the unexpected… then expect it!

Many investors fail to regular reassess their portfolio and financial position. Keeping abreast of rental return, borrowing level, incomes, outgoing and expected long term asset performance are key.

Don’t be lazy. By keeping abreast of these elements, you won’t get caught off guard and will be more likely to stay the course.

 

6. Check your mindset

Finally – revisit your investor mindset. Remember, you are among a rare number of Australian who are planning for a comfortable future where you can enjoy the spoils of your hard work. It’s a marathon effort and there will be trying times. Just take a moment to breath, re-assess and move forward.

 

The good news is that, in my experience, most investors can acquire the right frame of mind to clear the challenges. It just takes effort, a patience and some support from those around you.

Don’t be at the thin end of the statistics. Join the ranks of those who ran the full real estate investment race… and won.

 

Happy hunting.

 

The post Six-point Solution To Conquer Investment Fear appeared first on Pure Property Investment.

Why I Still Buy In Sydney

 

 

 

 

 

 

 

 

 

The old adage ‘Misery loves company’ seems top of mind for anyone commenting on the Sydney property market at present. Everyone looks to climbing onto the same train – claiming the local market has ‘had its day’ and that the smart money is heading out of town.

And hasn’t it all turned on a dime? It feels like not too far back (just 12 months ago) Sydney real estate could do no wrong and the good times were going to last forever.

I realise dramatic headlines get clicks, but I think observers to cool their heels and take a practical look at why there are still opportunities for skilled property buyers in Sydney right now – in one sector in particular.

Here’s why I’m still buying harbour city property.

 

History repeats

Philosopher and novelist, George Santayana, once said, “Those who cannot remember the past are condemned to repeat it.”

In real estate circles, things are a little different because those who van remember the past are begging to repeat it so they can take advantage.

Most people might talk about cycles, but I think the market in Sydney is more like waves. There are peaks and troughs and the trick is knowing when to paddle on.

Sydney property has been an outstanding investment option for decades. It’s continued to perform and compound. As a comparison, did you know the ASX is currently around 10 per cent below its peak in 2017? That’s what I’d call a volatile vehicle.

In my view, the present property market softening was due – perhaps even a little overdue – but that doesn’t mean Sydney is dead in the water to investors.

 

The new NEW normal

Here’s another element inexperienced investors are failing to take on board.

Since 2012, Sydney real estate has performed like no other in the country, achieving around 75 per cent growth in house prices.

For anyone who bought their first ever investment between 2010 and 2013, they have never known the market to move in any direction but up. It’s a fortunate thing to have jagged your timing so perfectly, but it doesn’t nothing for getting some experience under your belt.

Analysis of ABS House Price Index data by Property Investment Professionals of Australia showed across a 15-year period from 2002 to 2017, Sydney was actually one of our least successful real estate markets.

While recent first-time investors have been getting comfortable with the ongoing and inevitable rise of Sydney property values year-on-year, they’ve failed to recognise this seemingly ‘normal market’ was actually abnormal.

 

But there’s upside… right?

Now I’m not being a pessimist. In fact, long-term annual price growth of between five and eight per cent is more likely than the double digits we’ve been seeing.

In fact, many other statistics look good for Sydney. Employment numbers are strong and there’s plenty of new infrastructure underway too. We are one of the world’s great cities – up there with London, New York, Paris and Tokyo so our cache among travellers and transient international professionals is pretty high.

Sydney will remain the most populous capital in the nation and while plenty emigrate beyond the NSW borders to seek other opportunities, demand for Sydney housing will remain.

 

What am I buying?

As you can see, I think while Sydney’s property market is softer, there are still opportunities.

For me though, I believe one sector stands out among all others as the best chance to profit. You will not do well purchasing any random listing for your portfolio in the hope of building equity and generating cash flow. You must be surgical in your approach to property selection right now and, in my opinion, the smart money is looking for development prospects.

I believe the best way to ensure you buy right is to seek sites with immediate potential for a subdivision or build project that can yield an increase in equity or a net profit.

These sorts of ventures aren’t for everyone though – they suit more sophisticated investors who have the financial means and experience to tackle them head on.

Best of all, many vendors looking to offload development sites are well aware of the current market conditions. That means they are becoming more negotiable on price, particularly if they need to sell.

The toughest part is finding a property that suit your needs – and this is where the assistance of an experienced buyers’ agent come in. With comprehensive analysis, enviable networks and well-honed negotiation skills, a buyers’ agent is more likely to locate and secure q site for their client in the current market.

If you are still keen to buy Sydney property, don’t fret. Just call on a specialist to ensure ensure you’re buying while others are panicking.

 

The post Why I Still Buy In Sydney appeared first on Pure Property Investment.

Why I Don’t Have A Household Budget

We’re often lectured on the wisdom of counting every single cent spent on our household budget, but I believe there is a way to become a successful investor without having to pull out your pocket calculator every time you purchase a coffee.

 

The common wisdom

I’m on the board of the Property Investment Professionals of Australia (PIPA) and was recently at dinner with other board members in Sydney.

Around the table were some of this country’s smartest real estate people. They were casually shooting the breeze and sharing ideas.

Everyone was in good spirits and with a great feed and a few drinks under the belt, conversation inevitably turned to a common interest – property investment and our strategies for wealth building.

Not everyone had the same approach to finance and home administration. Why would they? We were from various backgrounds and at different stages of life. Professionally, some are operating huge teams of buyers’ agents helping clients invest in a broad spectrum of property types across all boarders, while others were more niche in their approach and keeping low-overheads with a small but welded on group of purchasers. Some had been working for decades and had built up their own financial base, while others were still getting established in both their business and personal lives.

While much of our shared wisdom’ was the same, there was one element of finance where I found myself in the minority. The discussion turned to how we manage our own home budgets and most said they maintained a reasonably strict household spreadsheet.

Here’s where I came clean and surprised a few of my compatriots.

…I don’t budget.

 

Big picture planning first

You’ve probably heard your older, wiser relatives utter the phrase ‘Watch the pennies, and the pounds will take care of themselves.’

Setting aside that we flipped into decimal currency over 50 years ago (which shows you how old this saying is) I agree that monitoring the nuances works for some. If you’re the sort who needs the discipline of corralling the smaller stuff so as to achieve the bigger goal then that’s fine.

That said, my approach is actually an inverse – I use the bigger picture to keep the nuances in line.

My whole philosophy on investing for the life you want revolves around what I call ‘checking your barometer’.

I believe before you begin investing, the very first item on your ‘must do’ sheet has to be writing down the things you consider the most important in life – and I mean the essentials beyond money and material gains.

For example, my barometer setting is dominated by time with my family – and that actually doesn’t require us to spend $20,000 a pop holidaying in the Maldives every six months.

By checking your barometer and defining your ‘happiness essentials’, you can build your investment and lifetime strategy for the future.

Next up, most investors do need to be right across their home finances, but rather than concentrating on the budget alone, I recommend tackling your dollars under the guidance of an experienced financial adviser and/or mortgage broker who specialises in the real estate space. They can lead you through what’s needed for your investment plan – particular in terms of borrowing to build the portfolio.

At this stage, I actually do recommend spending a period (perhaps three months) monitoring your household’s incomes and expenses, to get a feel for how your cash flow moves. This gives you an education on what spending you can flex to help achieve your barometer’s goals.

Finally – build your investment strategy around that end game and follow the path (with constant revision and room to pivot when needed of course).

 

Dump the budget

Here’s the cool thing I’ve discovered by ensuring my life goals and strategy are set early and dominate my decision making.

If you establish the flow path of barometer goals, financial strategy with professional advice and working knowledge of household’s income, then your approach to how and why you spend money becomes ingrained.

I no longer need to track my budget with surgical precision. How and where I spend money to fulfil my family’s wishes is now second nature. I’ve become holistically better at money management through achieving a necessary income, keeping an eye on my goals, rechecking my personal barometer and making informed choices about where my dollars are used.

I’m uncomfortable with counting the cents because I don’t want to deny those small joys of life as they come around. Why live with the guilt?

Instead, stay strict about your goals and values. You’ll naturally divert money away from unnecessary spends in order to enjoy things you love most. If you and the kids would like to have a great day at Luna Park followed by star gazing at the Sydney Observatory, then do it without compromise. These memories last a lifetime. And if you keep your barometer goals in mind, you will find the funds without blowing the budget.

My mental spreadsheet may not be precise but I have never been caught short and I have built an emotional bank of experiences that didn’t involve me counting how many cappuccinos I was having throughout the day.

Living under the stressful financial shadows of a life dominated by a household budget is not for me – and it doesn’t need to be for you either.

Happy hunting.

 

The post Why I Don’t Have A Household Budget appeared first on Pure Property Investment.

What Are The Pros & Cons Of Buying New

Host: Those pitfalls are.

Paul: Yeah. I mean long and short of it is the unforeseen. I’m building some properties myself at the moment and going through a whole list of what they deem to be PC items and fixed price contracts not of this fixed price contract so even if you are buying off the plan on a particular fixed contract price, there are so many additional aspects to that that as a first time buyer and/or owner builder you potentially won’t know what the pitfalls are and the additional costs that come into the play. If you look at it on the flipside though from any kind of benefits from buying off the plan or buying new there are certain states and certain development companies who potentially might look at offering things such as stamp duty exemptions or certain discounts on certain aspects of the build cost, so depending on which market you’re buying in there are certain times or certain opportunities where you can actually manufacture a bit of leverage and actually use that to a strength rather than a weakness, but it’s full of certain pitfalls if you’re not aware of what you’re looking for.

Host: Just looks like a pretty stressful way to buy given it you know the figures we’re looking at the beginning of this show it’s like units in Baulkham Hills, have gone down 19 percent. I mean if you bought one of those off the plan and then only had it for a couple of years and then it’s gone down by that much you’ve lost a lot of time when you were never even in the unit it was just sort of a line on a piece of paper.

Paul: Absolutely and that’s probably the really the biggest risk aspect of that off the plan component is typically off the plant doesn’t mean that two months later you own the property typically it’s somewhere between 12 and 36 months and in that time you’re looking consistently at data trying to think it is my property going up in value? Is it going sideways? Am I going to need to tip in a bigger deposit by settlement time comes around and quite frankly right now probably be bought off the plan in Sydney or Melbourne probably one or two years ago and looking at all three of those things happening at the same time. So definitely buying existing mitigates a lot of those risks because you buy existing products with existing rents existing markets and you can predict those outcomes a lot more specifically.

The post What Are The Pros & Cons Of Buying New appeared first on Pure Property Investment.

Should You Be Renovating To Increase Your Rent?

Host: Are you better to try and improve it or just let it go to the lowest bidder.

Paul: Yeah it’s a really interesting one because I mean it comes down to where that problem is located in eastern suburbs of Sydney, as much as the capital growth side of things is flattened out vacancy rates are still very low and they have remained low forever and a day. So ultimately my question is what’s the feedback been from your property manager because if that property’s been vacant for more than a month in that market; A it’s priced completely incorrectly or B the property managers probably not giving that feedback that they should either be looking at changing a couple of the potential façade aspects of it air conditioning mod cons. Possibly but it probably comes down to pricing and potentially also feedback from the property manager. I’d be getting on the phone to them very very quickly because to me that shouldn’t be happening.

Host: Well let’s say it is an area where vacancy rates are very low and it’s a very in demand area, but they are people who are pretty selective as well incorrectly you know upper echelons and they probably don’t want something that’s falling down around their ears.

Paul: Yeah to a degree but you also get a lot of house sharing in those markets and especially for those probably people who are potentially graduates in graduate salaries. So house sharing is quite prevalent is those lower probably lower modern- conned finished properties potentially the ones that do attract those types of tenants which is fine because typically they still treat your property okay and sometimes throwing extra money after a property which still is going to be probably the bottom end of the barrel might not be the best money spent when it comes down to what the end outcome is going to be given those assets are really going to be depreciable either.

The post Should You Be Renovating To Increase Your Rent? appeared first on Pure Property Investment.

How Can You Come Out On Top At Auction

Host: What are your tips Paul in tight markets and in one’s where you can be a bit choosier.

Paul: I mean if Alex’s is in Hobart is writing it from Hobart for me. Hobart’s auction typically on their annual or weekly rates hovers anywhere between half a dozen to a dozen auctions on a big week and out of that the clearance rates will have a 100 percent to 0 percent. So, it really comes down to a majority of those properties that market typically the higher end properties that do auction in Hobart. So my tip personally in that market is especially now I think where we’re getting closer to the top end of the Hobart market in the Hobart run, is really understand the markets and what you’re wanting to buy what you actually want to buy within those markets try to find the agents who are listing the majority of the properties that you really are keen on and go into their office buy them a coffee and let them know exactly your price point the streets the property types and tell them that you are finance ready. What you’re looking for and hopefully from that point tell them to give you the property or at least access to look at a property before it gets to the market. Avoid these auction conditions at all costs because ultimately auctions are there to benefit the vendor or they’re there to create competition and the job of the buyer to get the best price is to eliminate competition. So that’s what I would personally want to be seeing happen

Host: Right. Okay Luke we’ll bring you in on this one now maybe you can expand Alex’s question out too to places where there are more auctions happening around you and what is, what are some good tips to stand out at auction.

Luke: Yeah they’re good tips to stand out at auction, is to not buy at auction first of all.

The post How Can You Come Out On Top At Auction appeared first on Pure Property Investment.