We’ve enjoyed a few good years in property but now as this real estate cycle matures and uncertainty surrounds the extent of the potential for future capital growth, it’s appropriate to remember that it is not so much the outside world that defines our success, but the place we take in us as investors.
There will always be forces working against us over which we have no control:
Politicians will keep making and changing policies, interest rates will rise and fall and the world will keep on turning without much regard for our personal plans.
In order to navigate through the changes and obstacles that will inevitably crop up, we need prepare in advance to weather these difficulties.
So let’s look at six strategies that could help you reach your investment goals, irrespective of the external forces at play.
1. Invest in your knowledge before you invest in bricks and mortar
The best place to start investing is in yourself.
However with so much information out there, it’s hard to know who to listen to.
I suggest you learn from others who’ve not only achieved what you want to achieve, but who’ve maintained their wealth over a long period of time, not just during the last property cycle. You see a rising tide lifts all ships.
Also surround yourself with like minded people and get a mentor who will not only inspire and challenge you, but hold you accountable for your actions.
2. Marry your investment plans with your investment capital
There’s little doubt interest rates will rise again causing capital growth to slow down. This means some investors who have bitten off more than they can chew will come unstuck because they’ve overcommitted financially.
Sure it’s exciting to have big dreams, but if the path to get you there is paved with gold that you simply can’t afford, then your dreams run the risk of becoming dilemmas.
Remember that all booms come to an end and over the next few years we’ll be heading towards the peak of this property cycle.
So while enjoying the current phase, make sure you’re financially prepared for what’s ahead.
3. Use your portfolio to reduce your risk
Strategic investors look forward to the best of times but protect their portfolios for the tough times that will inevitably come.
Rather than gearing to the max, they take a more prudent approach by building an emergency buffer to buy themselves time to ride through the storms.
These are often lines of credit or offset accounts, which they can call upon should the unexpected such as a loss of employment, a prolonged illness, an unforeseen repair or an extended vacancy in their rental property occur.
They also own the type of property that will be in continuous strong demand by a wide demographic of owner-occupiers in the big capital cities of Australia, because these locations are underpinned by multiple pillars of economic support and therefore values don’t fluctuate widely when times become tough.
4. Do the due diligence before you do the deal
While the average investors buy their properties emotionally, sophisticated investors have an investment plan that they adhere to and carefully evaluate any potential investment opportunity in light of their long-term goals.
They know that this makes their investment decisions less emotional and their results are more consistent and predictable.
5. Keep your sights set on your goals
While most investors buy a property and hold it for the long term, strategic investors regularly review their investment portfolio’s performance in light of their long-term goals.
Currently many are evaluating how their properties will perform if interest rates rise one or two percent as many economists predict will happen.
This means some are considering selling up secondary properties that are likely to languish in the next stage of the cycle.
I like to look at my portfolio’s performance at least once a year:
Are my properties performing to my expectations? Are they outperforming the market? If that property were for sale today would I buy it again? Does this property still fit in with my overall plan?
You see…over time you grow, your skills improve and your circumstances change. Treat your property like a business and evaluate your assets dispassionately and take appropriate action.
6. Remember that in real estate, less is often more
The person who wins in the end is not the one with the most properties.
And contrary to what you might believe, owning heaps of properties does not necessarily mean you will have financial freedom later in life.
Concentrate on getting the best deals for your investment goals, not the most deals.
When it comes down to it, capital growth is key in building wealth through real estate and properties that outperform the long term averages always come at a price. But it is a price worth paying.
The trick is to avoid cheap or secondary properties.
You make your money when you buy your property, not by purchasing a cheap property, but by buying the right property.
Hopefully your investment journey will be a long one however this means you’re likely to encounter some good economic times and some tough ones, periods of low interest rates and high interest rates, booms in the property markets and slumps.
Remember to prepare for the worst, while hoping for the best – in other words maximise your upside while at the same time covering your downside and you’ll remain in control of your destiny.