Fac­tors in­vestors should weigh up

The Weekend Post - Real Estate - - Front Page -

NEG­A­TIVE gear­ing, will it re­main in place?

Are we head­ing for an over­sup­ply of new apart­ments in our cities?

Do the new house and land es­tates out of town re­ally rep­re­sent the great Aussie dream?

Did your friends in­vest in a prop­erty more than five years ago, which is now worth less than what they paid?

You hear of peo­ple whose prop­erty hold­ing costs spi­ral up as a re­sult of va­cancy pe­ri­ods, while never-end­ing main­te­nance is­sues, which they never al­lowed for in the orig­i­nal fi­nance cal­cu­la­tions, hit their bank bal­ance hard.

You can’t buy where you want to be­cause it seems oth­ers beat you to it.

Then over­seas buy­ers seem to get all the deals and the per­cent­age cap­i­tal growth of past decades may never be like it once was.

Not for­get­ting the ten­ants from hell and if you ac­tu­ally want to buy prop­erty with your self-man­aged su­per fund (SMSF) it seems to be a lo­gis­ti­cal night­mare.

Can this all be me­dia hype, or ac­tual re­al­ity? In my ex­pe­ri­ence just about ev­ery sce­nario or con­sid­er­a­tion listed is sadly based on fact.

In­vest­ing in res­i­den­tial prop­erty can be fraught with pit­falls – changes to tax, SMSF rules, home loan rates, hold­ing costs are all el­e­ments out of your con­trol.

There are gen­uine risks that hover over and around any prop­erty in­vestor. These rather in­tim­i­dat­ing fac­tors should al­ways be at the back of any in­vestor’s mind and con­sid­ered as a pos­si­ble sce­nario.

It’s al­ways best to be armed and pre­pared just in case.

Yet de­spite all this neg­a­tiv­ity, the pub­lic pas­sion for in­vest­ing in prop­erty con­tin­ues. But why? I found the an­swer at a very pleas­ant af­ter­noon catch-up with fam­ily friends. The friends in ques­tion over the years have clearly amassed a fair old chunk of cash in their su­per­an­nu­a­tion fund, while the ad­vis­ers of said fund ac­tu­ally seem to be man­ag­ing this very well and keep­ing all in­volved in­formed.

No money seems to have been lost over the years but the gain is not ex­actly im­pres­sive.

This is the big­gest is­sue de­spite the lady of the house, we will call her Kate, track­ing all the fam­ily fi­nances very ef­fi­ciently.

Kate is very bright and in­tel­li­gent, but de­spite many at­tempts she just can’t get to grips with the real fac­tors of what is hap­pen­ing to the fam­ily nest egg.

Of course I sug­gested a so­lu­tion, buy some real es­tate and take con­trol us­ing a SMSF.

Kate’s re­ac­tion was of ex­cite­ment and re­lief, for her the thought of ac­tu­ally be­ing able to track the funds cent by cent and in­vest­ing in a tan­gi­ble sce­nario seemed to give her peace of mind.

She was that happy we all got of­fered more cake.

In­vest­ing in houses, bricks and mor­tar or tim­ber and tin, although hav­ing neg­a­tives and risks, is a form of in­vest­ment un­der­stood in prin­ci­ple.

It is also an in­vest­ment you can gen­uinely track your­self.

In my opin­ion this is en­hanced by the fact you can choose to opt in and out when you like, re­mem­ber­ing in­vest­ment is only about mak­ing money. This means the price you pay and price you sell for should be your fo­cus.

Res­i­den­tial prop­erty as an in­vest­ment is un­der­stand­able and fa­mil­iar to many. You can care­fully con­sider your op­tions, choose your at­ti­tude to risk.

Do you want ac­tual in­come more than cap­i­tal growth or more of a bal­ance?

You can de­cide the buy­ing and the sell­ing time and de­cide what you are com­fort­able with spend­ing.

All of these fac­tors are of­fered to typ­i­cal su­per­an­nu­a­tion fund in­vestors too, but how many of you ac­tu­ally un­der­stand your state­ments?

Even worse, how many of you sim­ply don’t look?

I have sim­pli­fied the process greatly and if it was that easy then no one would be mak­ing mis­takes and los­ing money – but they do.

Kate and oth­ers like her would rather play a game where we un­der­stand the ba­sic rules, deal with some­thing fa­mil­iar and take con­trol our­selves.

Prop­erty pur­chas­ing as an in­vest­ment ve­hi­cle clearly is seen by many Aus­tralians not just as a get-rich-quick scheme – and it shouldn’t be be­cause it usu­ally isn’t – but as a way to save for your fu­ture in a form you can un­der­stand.

While stocks and shares, com­modi­ties and all those other mar­kets can out­per­form, in some cases sub­stan­tially, they can also crash and burn to noth­ing.

Have you ever found a prop­erty worth ab­so­lutely noth­ing? Hous­ing can and does crash but al­ways bounces back even­tu­ally.

My one ab­so­lute es­sen­tial tip for in­vest­ing in prop­erty is re­search: never take any­thing at face value (at­tend­ing a sem­i­nar when “mil­lion­aire” is men­tioned is best avoided) and un­der­stand the three key el­e­ments of suc­cess­ful in­vest­ment.

These are:

• Buy at no more than the true mar­ket value at the time.

• En­sure po­ten­tial in­come is tan­gi­ble and hold­ing costs are af­ford­able to you long term.

• Be in a po­si­tion to sell at the right time in the mar­ket.

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