The 3 questions property investors should always ask

Almost 10 per cent of Australians own an investment property, but a new survey reveals a surprising number of them admit they don’t really have any investment skills.

The national survey conducted on behalf of property investment company Custodian, found 11 per cent of property investors had no knowledge of personal financial management, budgeting or investment skills.

A fifth (21 per cent) of investors said they felt financially stressed and were worried about money as a result of COVID.

Uncertainty during the first year of COVID highlighted why it is essential property investors prepare properly before buying in the future.

According to Custodian’s 7 Steps to Wealth, there are three questions every investor must ask themselves:

• What structure will allow me to build a portfolio in the shortest time?
• What sort of property will give me the highest capital growth?
• What location will give me the right balance between growth and cash flow?

Unfortunately, most Australians who invest in property don’t ask themselves even one of those questions.

They see something they like and just jump in which is why 97 per cent of them don’t maximise their capital growth or their tax benefits and why only one per cent of investors build enough of an income to retire on.

While many Australians invest in residential property, not a lot do the research needed to make it a successful investment.

That’s why it’s important that you do your research and speak to experts before you dive in.

It can be a false economy trying to save a few dollars and do everything yourself when it comes to property investment.

Saving a few hundred dollars in expert fees, can cost you much more down the track.

The survey found more than half (56 per cent) of property investors who had survived the economic downturn caused by the COVID pandemic had done so because they had made sure they had prepared their finances for the worst.

No one predicted the COVID pandemic which shut down borders and hit economies throughout the world.

It's been a real wakeup call for some investors that they really weren’t as prepared as they should have been to ride out a financial storm.

It’s not always going to be a pandemic but things can go wrong, it could be a major weather event, a relationship breakup or a death in the family.

Property investors should have three months’ worth of loan repayments and the excess on any insurance claim set aside for each property they own.

The survey found about 13 per cent of investors were forced to contribute more to their investment loan repayments as they had lost a tenant during COVID.

Top tips for property investors:

• Buy land not units (land appreciates, buildings depreciate)
• Seek expert advice/assistance
• Make sure you have a financial buffer in place
• Choose a property for capital growth