It’s All About The Investor

May 01 2019

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.

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