Have you ever thought about writing something down that you can hand to your kids that will help them in their property investment journey? I have.
I wish I knew at age 25 what I do now at age 51.
So I finally got around to writing that article, but you know what – it’s not a family secret and it’s worth sharing.
I’ve invested in lots of assets over the years. I’ve made good money and lost lots too (in shares FYI – never property!)
For me, successful property investing boils down to 9 key rules or golden nuggets, as I like to call them.
Rule #1 – Pay the Right Price
This sounds simple – but in my opinion it’s not given enough consideration. The most successful property developers I know all say: You make your money when you buy the land.
That’s akin to saying “you make your money at the start of the project – by paying the right price”. This principle should apply to everyday property investors as well.
How many property investors know the complete sales history of all the units in a block of apartments before they buy the unit in that block? It’s pretty easy to find out these days – and you’re mad not too.
Websites like RP Data give you comparable values that were once only available to valuers, now they can be accessed by anyone, at a fairly reasonable price. So knowing the worth or comparable value is key.
Rule #2 – Infrastructure/Transport
Being ahead of the game in terms of future infrastructure can certainly put you ahead of the curve. There are many websites these days that focus on finding you the next area that may benefit from an ease in access to the city or increase in data speeds via the NBN etc.
Rule #3 – Add Value
Buying a property where you can add value has always been a pretty safe bet. Again, it’s a simple tip… but some of the best returns I see are clients who do a simple makeover to a property. New Kitchen from Ikea, new blinds, new carpet, new appliances and bingo after spending $25K their property has gone up $50k in value and the rent has increased to boot.
And here’s the kicker – on that $25k reno – Washington Brown will provide you with a depreciation schedule that allows you to legally write off half of it as an immediate tax deduction.
To get a free quote on your own property depreciation schedule, click here.
Rule #4 – Do the Opposite of Everyone Else
Now this is not a simple tip, but stay with me. I personally get nervous when all my friends (whom I haven’t heard from for 10 years) start ringing me up and asking me for property advice. It’s a sign the market is heating up. Be it shares or property, I hate following the crowd. But if you do trade shares – you will know that “the trend can be your friend”.
And that’s true….but things can turn quickly and that’s partly due to the media. Think about it – headlines sell papers. Examples.
Gloom: “Buyer Rides Property Wave: $200K profit in resale after 3 months.”
Doom: “Buyer Faces Bankruptcy: Bought apartment for $700K off the plans, forced to sell for $500 by settlement.”
That sells papers. This one doesn’t.
Average: “Buyer makes median rental yield and achieves steady capital growth.” BORING.
So in my view – be wary of the media and the general “spin”. Try to remain independent.
If you’re enjoying this article and want to find out how I’ve saved thousands of investors millions of dollars, take a look at my free book below!
Rule #5 – Follow the Leader
Now I know I’m about to contradict what I just said, but sometimes it pays to follow the leader – especially if they’re a knowledge one you respect with a proven track record.
On October 16th, 2008 – Warren Buffett wrote an article titled ‘Buy American, I Am’
If you followed his lead your stock portfolio would have increased by 212% – not bad!
From a property point of view, some of the wealthiest and most successful property developers I know are Lang Walker and Harry Triguboff.
Rule #6 – Have a Strategy
Have someone look at your current financial situation and your goals and work together to ensure a sound strategy is in place.
Here are two simple tips you might want to ask an advisor:
a. “How much are you making on this transaction?” Simple but effective and make them show you. How much is vested in their interest compared to yours?
b. “What is the best structure to buy this property in and why?” This should always be asked before any transaction. Depending on the phase of your life, it may be that a Self Managed Super Fund is the better alternative, in other circumstances it could be that owning a property personally will be of more benefit.
The decision making should also consider land tax, negative gearing and CGT implications. I can’t stress the importance of this more. Once you buy a property in a certain entity it’s pretty hard to change without ramifications/significant costs.
Getting a depreciation schedule could save you hundreds of thousands of dollars over the life of your property, so we think it’s pretty important! Work out how much you can claim on your property by using our free calculator.
Rule #7 – Do the Numbers
You should have a good understanding of the financial impact of any property transaction before you enter into it.
Do you know how stamp duty is treated in tax terms on your investment property?
How does claiming depreciation affect my capital gains tax when I sell it?
When I sell my property – how are the selling fees treated for CGT purposes?
These are tricky questions – but I reckon you should know this – before buying an investment property.
Rule #8 – Don’t Believe the HYPE
Property doesn’t always go up. That’s one of most often touted lies. Sure – if you’re not forced to sell in a downturn, then you can always hang on and claw your way back, but that isn’t the case for everyone.
The banks will lend you more on an off-the-plan property property investment than they will on Woolworth or BHP Shares for instance.
So if you can gear into a property with a 5% deposit…remember – all it takes is for that property to go up 5% for you to double your money BUT if it goes down by 5% you LOSE all your money.
The above excludes all exit and entry costs… which is quite silly… but I’m making a point.
Sadly, this is where most investors don’t do the math.
Rule #9 – Buy the Land Free!
I review thousands and thousands of purchases every year. And when I see a client buying a property at close or below the original construction cost – I smile.
And it does happen. Post GFC we have released many reports where the original construction cost exceeded the purchase price paid by our client.
If you ask me – it’s very hard to lose money in property when you get the land free.
Yes it may take a while for that property or area to grow again. But eventually it will.
Personally, I’d rather buy at the low point of the market than when a market is surrounded by hype.
I want to pass this onto my daughter… but I’m keen to hear what you would add, so please leave a comment below.
Or if you’re looking for a depreciation schedule and wondering how much you could save on your tax bill, use our free calculator to find out!