Few home truths
Chris Gray offers his tips for climbing the property ladder
PROPERTYand renovations can be for anyone, it all comes down to your goals and dreams andhowmuchyou want them. Whenyou’re starting out and have limited finances it is tough, but the sooner you get on the ladder the sooner your equity grows and you can start duplicating.
Caution: The quicker you try to double your money, the sooner you’re likely to fall over, so slow and steady is the key to winning the race.
1. Don’t fear the gear is one ofmymantras. Most people are afraid of debt and leverage, as they perceive it as dangerous. However, debt can increase your return and shorten the time it takes to get the return. Debt does increase your risk during a downturn, so every investor needs to knowhowmuchdebt they’re comfortable with.
2. Goagainst the grain. Ninety-five per cent of the population retires poor. If your goal is to retire wealthy, then you need to do the opposite of what everyone else is doing. Good investors buy when everyone else sells and sell when everyone else is buying. You need to block out negative comments which can sometimes come from friends, relatives and the media.
3. Stick to your strategy. Every investor should have a strategy that reflects their circumstances and adversity to risk. Figure out what works for you and stick with it.
Remember, a good strategy doesn’t have to be complicated.
4. Time in the market. The real secret to wealth is compounding your investments. You need to change your mindset from trying to be a millionaire overnight to aiming for consistency. This can be frustrating when you start out, as your wealth won’t increase much. But over time you will see your portfolio rise in value.
5. Timing the market. Manypeople wait until the market is at a low before buying. If you buy good stock and hold on to it for 10 years or more, you should see some great capital gains, regardless of market ups and downs.
6. Buy blue chip. It’s worth paying market value for a good property in a top suburb rather than a property that is low-priced because nobody really wants it. Blue chip properties tend to steadily grow in value over the years, so if you buy and hold on to the property you can then build up equity, borrow against the property and build up your portfolio. Blue chip properties typically grow between 7 and 10 per cent per year in the long term.
7. If possible, never sell. Most people think that you need to sell to realise a gain, but that’s not the case. Property is a long term investment. My strategy is to hold on to properties and refinance in order to benefit from the equity increase.
8. Create a two-sided buffer:
Side 1: Refinance your property to create a buffer. Refinancing when your property grows in value will create an emergency buffer zone. This will ensure that you can continue to make mortgage repayments, even if you lose your job.
Side 2: Keep part of the equity aside as a buffer. This is like an emergency fund for when things go wrong or when interest rates rise. Wheneveryone else panics as rates rise, some will choose to sell, and if you’re cashed up, there’s an opportunity to get a great property at a reasonable price.
9. Choose the right property. Focus on purchasing cosmetically tired rather than structurally tired properties. Structural work is often where problems occur and budgets blow out. Some of the most efficient and simple ways to renovate a cosmetically tired home include painting, carpeting, polishing floorboards, converting a garage into a bedroom and replacing fittings.
10. Renovate wisely. You need to understand whois likely to buy your property and what they want. You also need to know what other homes are on the market, what condition they’re in and what features they offer compared to yours. If you’re selling a property muchof the sale price will come down to the cosmetics such as painting, carpeting and styling. I’ve seen some of the worst properties styled well and sell for a premium compared to better properties that haven’t been styled and sell at a lower price.
11. Make sure it’s lettable. Buy a property that the majority of working professionals could afford to rent, in an area where they want to live: that is, within 5-15km of the city. Based on median prices and rental yields I would buy a unit in high-density cities like Sydney or Melbourne, while in lower-density cities like Brisbane or Perth I would buy a house. This should reap the best yields and growth over the long term.
12. Invest in professional expertise: You need professional help with your first investment (and, I believe, every investment thereafter) because you are spending large amounts of money. You’ve got to treat this outlay like you would any other business and pay for expert assistance. Every investor needs a good accountant, mortgage broker, financial adviser, valuer, building inspector and buyer’s agent.
13. Don’t retire on property rents. Most people think you’ve got to pay property off as quickly as possible and then retire on rents. But often it’s the capital growth that makes the real money. Be less emotional about it – look at the numbers and base your decisions on that.
If you are ready to enter the property investment market, go for it. It’s a great time to take the leap. Chris Gray is the host ofYour Money,Your Call on Sky Television.