It seems 2017 is going to be another good year for the property market in Australia’s key cities of Melbourne and Sydney.
Projections from SQM Research shows that if the Reserve Bank cuts cash rates by 0.25 percentage points, Sydney house prices could rise as much as 18%, and Melbourne 17%. Exciting opportunities for real estate investors also lie beyond the capital cities in areas like the NSW Central Coast and the rapidly developing city of Wollongong.
But no matter where you buy, you need to avoid these three mistakes when you take your first steps into residential property investment.
1. Not having a clear investment strategy
Many people jump into property investment without a clear investment strategy. Having a clear investment strategy is so crucial to your future financial success. You should start with a good understanding of your current financial position and establish some meaningful financial goals with a clear timeframe. This would then be translated into an investment strategy that helps you towards your goals. Some of the most popular goals are: be debt free at a certain age, have passive income that pay for your living expense, have assets to give to your children etc.
Most investors get excited and spent a large amount of time looking at the potential properties they are going to purchase. Whilst buying the right property is an important factor of any investment strategy it must suit your financial position and align with the goals that you have set earlier.
All of these goals require different types of investment strategies and are informed by the question: what do I hope to achieve at the end of my investment journey?
2. Not considering the cash flow of the property
Cash flow analysis is one of the most important tools for property investors. It is the bloodline for your investment strategy. It is true that if you hold on to any property long enough, you will achieve capital growth in the end. The question is how long can you hold on to that property and what is it costing you by doing so?
The lack of understanding about how cash flow work with investment property is also one of the biggest reason why people hesitate to invest. Most people think they cannot even pay off their current home loan how can they afford another one? The truth is there are many type of investment properties with different cash flow position. A negative gearing property might be good to offset your high income tax however it’s still a real loss for its owner and whilst the gain in capital value is often much greater than the loss it doesn’t suit everyone. Not if you don’t have much surplus cash saving every month.
Positive cashflow property is a great option for people with tight cashflow, combined this with the right location and research it’s a no doubt a winning strategy. Having a property that is not only paying itself but providing some passive income is a dream scenario for most investors, however it requires a lot of effort to find these investments. Again it is a mistake to invest into something that you are not certain of the impact it does on your cashflow hence it is so important to sit down with a professional who can show you step by step how it work.
3. Buying with emotions rather than logic
Too many investors put their emotions first when it comes to buying a property. For example, they choose a pricey property in an area in which they would like to live or retire. However remember you invest for a reason which is to achieve your financial goals. Every decision you make have to be aligned with your goals. This means approaching property investment with an outcome mindset rather than a lifestyle mindset.
You need to put aside your emotions and personal preferences and think like a business person. Think about the potential growth and the return on your investment over the years.
Proper research will show factors that will drive a property’s value up – a new factory being built in the area, or a new hospital or rail line for example. It’s not about how you feel about the property, it’s what the property is going to do for you as a business investment.
As you grow in confidence you will develop a portfolio of investments directed towards your personal goals. But remember, circumstances do change so you can always ask for advice if you’re not sure about the path you’re on.
To get in touch with a Financial Specialist at Gordon Wealth, click here, or call us on 1300 05 05 88.
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