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  • Writer's pictureFraol Reffu

The secrets of successful property investment

Reasons why people are afraid to invest

Property investment can be a daunting concept to many people. One of that the key reasons why many decide not to become an investor is due to the length of time prior to return of investment. Psychologically, humans want instant returns and tend to fall for “get rich quick schemes”. Property investment is the completely opposite. It is a “get rich slow” mindset, through the magic of compounding interest. The longer you hold the asset the higher the returns – this is where wealth is created.

The secret of successful property investment

Residential property investment is the most resilient and rewarding asset class. COVID-19 proved this, with the property market holding resilient whilst the share market fluctuated. As an investor you have the power of leverage, to utilise a loan from the bank and/or equity from your property to transact and add more to your portfolio. Investors must think like a homeowner and treat property investment like a business, and ensure they detach themselves from emotional purchases. Within every property investment purchasing decision investors need to do their due diligence and buy in suburbs that have high owner occupier appeal. This will ensure quicker occupancy of their rental properties as well as longevity of tenants. For the investor this creates a more secure rental income cashflow. Furthermore, suburbs that are 70% owner occupier and 30% investor will always do well in the long term. Owner occupiers tend to drive the market as they have the highest disposable household incomes and tend to make higher emotional purchasing decisions. This will benefit an investor in the long term, if the investor decides to sell and cash in on capital growth made during the time in which they have held the property.

Investment Grade Property guideline

There are many factors that needs to be considered to ensure an investor is making the right decision when buying an investment grade property. Those include:

  • Right location and zoning (location does 80% of the heavy lifting in terms of returns)

  • Adding value by renovating or sub-dividing and building townhouses in the future

  • Choosing assets that has a capital growth potential and positive cashflow

  • Properties that has easy access to employment hubs and CBD

  • Proximity to public transport and good school catchments

What is FO-MO?

The fear of missing out (FO-MO) is a psychological behaviour that is mainly driven by the behaviours of other people’s success. A major driver of the 2021 record high property price growth was FOMO. Buyers are paying above intrinsic value in the current market which could hurt their cashflow potential in the medium term-long term. Since 2020, the residential property market has been red hot, with vendors achieving extraordinary results when selling their properties. This is mainly driven by high buyer demand (mainly owner occupiers) that exceeds the low supply levels. This is also coupled with record high consumer and business confidence levels, record low interest rate environment, and lenient bank lending and government incentives.

New investors may experience FOMO. The rental market is fetching higher than ever prices at present, due to low supply. Vacancy rates have fallen, and are at historical low in certain areas, signalling quicker occupancy and rental income cashflow. Whilst this may spur investors into action, investors must still act with caution and ensure they do their due diligence.

What are the 7 Deadly sins of property investing?

Without due diligence and extensive research, many investors tend to make mistakes when purchasing their investment properties. Property is a finance and numbers game, where the numbers and data must stack up to ensure viability as an investment grade property. Below are the 7 mistakes investors need to avoid in their property investment journey:

  • Not seeking security in cash flow

  • Not taking any calculated risks

  • Not buying in owner occupier high appeal locations

  • Buying in the wrong location/where you live

  • Investing in areas that rely on only 1 industry (i.e working from home movement, mining towns, reliance on tourism industry only)

  • Confusing yourself by considering too many advice portals and not having a trusted team (i.e , buyer’s agent, accountant, solicitor etc) around you

So, what is your “WHY”? Why do you want to invest in Property?

Before beginning your property investment journey, you must set an end goal. You MUST know your “WHY”. As a property investor what would you like to achieve? Is it passive income and reaching financial freedom? Property investing is a long-term game, where delayed gratification comes into play. Are you prepared for this – would you have the patience? A successful property investor has a long terms vision, treats property investment like a business and detaches themselves from the emotions that go with it.

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