PLANNING IS THE KEY TO SUCCESSFUL INVESTING

Budding investors need to consider a number of issues before taking the plunge into building a property portfolio for the future

IF the term “as safe as houses” is anything to go by, investing in property can be a solid way to build wealth.

The latest stats seemingly support this, with a typical Australian home gaining 16.1 per cent in value and national rental rates jumping 6.6 per cent in the past year.

The former marked the fastest annual growth in 17 years and the latter, the quickest in 12 years, according to CoreLogic.

But not every property is a winner, and there is plenty that budding investors need to consider before they start building a portfolio.

We turned to the experts for some advice.

WHERE DO I START?

The first question would-be property investors should ask themselves is: what do I want this property for?

This is the advice of Stockdale & Leggo chief executive – and seasoned investor – Charlotte Pascoe, who recommended asking five key questions.

“Are you looking for depreciation and tax benefits? Or do you want to one day live in it, so are you buying for your future self?” Ms Pascoe asked. “Are you buying it because you want capital growth? Or so you can leverage it and get more properties? Or are you looking for rental yields?

“Figuring out what you want the property for is the first step many new investors forget to do. They should sit down with their accountant or financial adviser and map out their next 10-20 years.”

Buyer’s advocate Frank Valentic agreed property investors should buy with a long-term view as opposed to “trying to time the market”.

Mr Valentic recommends his clients aim to hold their investments for seven to 10 years – in line with the latest CoreLogic figures showing Australian houses held for nine years and units, for eight, typically sold for a profit.

“And because of the high transaction costs – like stamp duty rates and capital gains taxes – you generally don’t want to be trading properties on a regular basis,” he said.

Mr Valentic said most of the successful investors on the books at his agency, Advantage Property Consulting, focused on high “capital growth first, and rent returns second”. However he agreed each individual needed to work out what they ideally wanted from an investment.

“In the initial five to 10 years of building a portfolio, most of my investors are focusing on building capital growth for long-term wealth creation. But as some get older and move into the retirement phase, their focus may turn to having cashflow-positive properties and strong rental returns ( as a more immediate income),” Mr Valentic said.

WHAT SHOULD I BUY?

Two real estate cliches actually help answer this question, according to Mr Valentic.

“It’s all about location, location, location,” he said. “If a property isn’t in the right location, we won’t even look at it for an investor.

“Also, land value appreciates and buildings depreciate. So if you can get a house with some land, that’s gold for an investor. If you can’t afford a house, try to buy a unit with some land.”

Expanding on what the “right location” was, Mr Valentic said easy access to the CBD had traditionally been a big factor. That had changed with the normalisation of working from home – but whether that would be permanent was yet to be seen.

Proximity to key amenities, such as public transport, shops, eateries, parks and schools, and lifestyle perks such as the beach, would always boost your chances of earning strong capital growth and attracting a tenant.

LANDLORD LIFE

Before becoming a property investor, it is important to consider what it means to be a landlord.

Ms Pascoe said this should involve factoring additional costs into your purchase budget, including property manager fees and a “slush fund” to cover any urgent repairs.

“Remember, while you own the property, it will be someone else’s home,” she said.

She also advised having money put aside in case your property became vacant and finding a new tenant did not happen right away.

And with several states overhauling their rental legislation, it was integral landlords were educated on relevant tenancy laws.

“Before any investor goes through with buying a property, they should get a property manager to look at it and confirm whether it will be compliant with the minimum standards,” Ms Pascoe said.

“And if not, find out what kind of cost will be involved and then can make the decision about whether you want to purchase.”