Do you have an investment plan?
Or are you too busy listening to the noise?
With so much ongoing hype around our property markets, it’s easy for investors to feel somewhat perplexed as to what type of action would be most beneficial for their portfolio right now. That is, if you base your investment decisions on the opinions of others and media scare mongering.
So how do you block out the din around alleged property bubbles and get on with the job at hand, of building a lucrative, wealth-producing asset base with residential real estate?
Well, it’s not as difficult as you might think and the best part is, by adopting the right investment methodology from the outset, you will assume control of your own destiny, rather than allowing market noise to filter through and potentially muddy your own investment agenda.
It’s all in the planning
Undertaking significant planning before you jump headlong into the investment game is critical in creating a well balanced, stable and consistently performing property portfolio.
Aside from keeping you on track when things get a little calamitous around our housing markets, there are two primary benefits in undertaking a planning stage when considering investing in property, or any other asset for that matter.
First, you can work through and identify any issues that you had never considered and, secondly, you can deal with anything that concerns you from day one. Developing a plan allows you to clearly see where things can potentially go wrong and, in turn, you can manage and mitigate those risks.
For instance, some people never really think about what would happen if they bought an underperforming property in terms of capital growth and income. What is the long-term effect on their financial position if the asset doesn’t meet their capital growth or rental targets?
They are often very focused on how much the property is worth and whether they can get a good deal on the initial transaction, but lose sight of the fact that they might intend to hold the property for the next 20 years – and how will the property actually perform over that period?
The big picture
This is a perfect example of how going through that planning process puts everything in perspective and clearly indicates where the risks and rewards lie. So rather than being solely focused on the initial price/value equation, you begin to realise that the core value of your strategy is really the property’s ability to provide the right level of income and/or capital growth that you require over a certain period to meet your end goals.
A plan will keep your focus firmly on the results that matter most and will show you exactly what you need to do to secure the type of property that will work in with your plan.
As you go through the planning process and identify any potential risks, you assume more control over and can determine the best ways to overcome or deal with those risks. This is the best way to maximise your chance of success and minimise any doubts, fears and real issues that could stand in your way.
Proactive approach to risk
By creating a concise financial plan for instance, you can feel confident knowing that from a cash-flow perspective you can afford to buy property. In addition, you can identify the risk factors involved with the financial aspect of property investing, such as loss of income, and mitigate those risks by doing things like taking out income protection insurance and life insurance.
Of course not all risks can be alleviated entirely. There will always be residual risks within your plan; elements you cannot control or plan to manage. At that point, you either have to accept those risks exist and follow through with your plan, or do nothing.
Essentially, before deciding property investment is just too risky and isn’t for you, you must at least do yourself the favour of drawing up a well thought-out plan and considering what you can do to minimise your risks. Only then can you make an educated decision on whether or not you will take the plunge. Just don’t base your decision on the opinions of others.
For more information on how you can profit from investing in Australia’s residential real estate sector by establishing clear investment goals and strategies, click here to contact us, or subscribe to receive regular post updates and industry insights.
Stuart Wemyss is a chartered accountant and founder of Property Tycoon Finance. Email: email@example.com
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