Family get-togethers at my grandparents’ place were always a big deal; lots of food, lots of laughter and lots of people… which meant lots of washing up. At the end of the meal my grandfather would throw into a hat the names of 15 birds and anyone who drew out the black crow had to wash up. The thing is, it seemed it was always me and my youngest cousins who got the black crow.
BY JANE SLACK-SMITH
It took me a while to realise that every name in the hat said ‘black crow’ and those who knew the game would just call out kookaburra, lorikeet, cockatoo etc while those who were inexperienced at the game and didn’t understand ‘the rules’ were at a distinct disadvantage.
Property investing is the same: there are those who seem to know the rules of the game and those who don’t. Those who don’t are often the ones lumbered with ‘the dirty dishes’ or in this case, the underperforming property. If you want to be successful with your investments you require an understanding of the fundamentals. The keys are 1) get to know the rules of the game and 2) start playing! However, without someone to share the rules you might win now and then but you won’t know exactly how or why, so that you can do it again (and again) and be successful each time. I teach hundreds of property investors every year – first we discuss their goals, their strategy and their criteria, and only then do we consider actual properties.
I spoke with someone recently who was offered a ‘bargain’. The property was in regional northern New South Wales and he was given the option to buy it for $20,000 less than the asking price. However when I asked a few questions I discovered that it would cost him about $5000 per annum to keep the property, the area had no capital growth predictions and at the end of 10 years he would have ended up with a property that was not worth any more than the initial asking price. So how would this ‘bargain of the century’ help him achieve his financial and personal goals? What was his strategy? To be honest, he didn’t have one.
Those investors who are most successful understand the game and they start with the end in mind. They figure out where they want to be and in what time frame. Then they work out what strategy is going to allow them to reach their goal in that timeframe – eg. buy and hold, renovate and flip, add a granny flat, develop, buy off the plan or buy overseas. Once the strategy is defined they work out specific criteria by which any property under consideration can be measured – i.e. maximum purchase price; percentage of funds allowed for renovation, granny flat or development; desirable capital growth; rental return required – and only after these criteria are set will they work out where to start looking for the property.
In reality, the property purchase is the end point, not the starting point. As a mortgage broker, I’m regularly asked by new clients to source finance for purchasing a home or investment property.
But often these same clients have not taken into account any of the fundamentals. They’ve found a property, fallen in love with it and now they plan to buy with no idea how this property will fit into a long term plan, they just know that it fills a need now.
So, my question to you is: Do you know the rules of successful property investment or will you be the one be stuck with the washing up?
Jane Slack-Smith is the director of Investment Property Finance with Investors Choice. She is a mortgage broker, market commentator and property educator who runs property investing courses on a range of topics. Visit www.yourpropertysuccess.com.au for dates and topics.