Have you ever found yourself saying ‘I don’t have time!’. This is particularly true in relation to things you really need to get done now but that apply to securing a more comfortable future for yourself. You are not alone. The thing with investing is that it requires a lot of time and today we all seem to have little time for our future. We spend most time focussed on now. Once time is finally dedicated to investment, the frustration of years of inaction come to bare.
15 years ago I was offered 2 X 600 sq m blocks with a 4 bedroom house on each in a development area for $230,000 per home. The things that stopped me investing right there and then were as follows:
- I feared the risk of not having a tenant (Vacancy in the area seemed high as there were many “For rent’ signs)
- I worried about the risk of the development area not growing (I thought the area was fixed in size to the streetscape)
- I was concerned about the risk that there were too many investment properties in the area (there were a lot of undeveloped land lots and only a few blocks under construction)
- The risk that the area seemed to me to be in the mortgage belt (22 kilometres from Melbourne CBD)
As a result of my focus on the risks alone, some 3 years and 106 properties later we were still looking for an investment property! Today, 15 years later, those properties would be worth $920,000, which represents a 400% increase in price. What a missed opportunity! Recognising this loss of potential upside, held a very strong lesson for me.
Eventually I realised I may have been unclear as to what would make a good investment in property. Luckily for our dreams of a prosperous future we read ‘Rich Dad Poor Dad’ ( by Robert Kiyosaki) and attended a few wealth creation seminars on property. My wife and I then trudged around Melbourne’s suburbs hunting for a place to park our funds, losing both weekends and a little confidence. Eventually, we settled on an older place we were confident would work out after receiving some good advice from a local agent about the importance of entering the market. We renovated it and did well.
Reviewing this journey recently made me realise that if I shared some of the barriers I ran into, maybe you won’t be slowed down like I was and you’ll find a worthwhile investment sooner.
I realised that the education on property investment my wife and I were carrying around in our heads was based on fear, managing risks and reducing our chances of loss. In fact if we had been more ignorant at the start, instead of thinking negatively as a focus, we would surely have done better.
A summary of the areas we could have improved on would include:
- Create a clear investment objective before starting out. We wanted an investment property that had good prospect of growth, one that wouldn’t cost a fortune to hold. But we were vague about the details and this slowed us greatly, as we inspected many unsuitable properties and wasted countless hours. Clarifying exactly what one wants and doesn’t want before starting out can save a lot of time.
- Manage risks by understanding their effects. One of my main fears was the risk of having poor tenants. Now of course I realise these can be reduced by having a good property manager, landlord and other insurances, a cash reserve and a fully understanding of the rental market. All of these can greatly reduce the risk of poor tenants affecting things. Your risk of capital loss can be minimised by understanding the price in the area so you don’t pay too much, and chosing properties near areas of employment.
- Avoiding high costs on entry and exit. Your costs on entry are manageable. Buying a newer property reduces your upfront buying costs. I also learned there are some exemptions on some new homes. Buying in bulk can also reduce your costs. Buying where there is significant income surplus over mortgage repayments for the average mortgage in an area can guarantee a level of success in the future. Buying lower priced properties can have greatly reduced costs such as stamp duty.
- Management Requirements. I didn’t want to have another job managing investments and some investments take a lot more to manage than others. Managed funds and shares take little time in the way of management and seem attractive because of this, however investment properties can also be much the same once you find yourself a great property manager. Having a good adviser to help you build your portfolio can assist greatly in picking through the barriers that need handling. Without the help of the property professional we met we would probably still be looking… ☺
So the moral of the tale is, find good help and help them help you by being completely honest.
I strongly believe that knowing these things earlier could have made a huge difference to my wife and I when we started out. Investing just 3 years earlier would have captured us an extra 25% return.
I hope the above helps you out in your journey.
Until next month happy investing.