Imagine for a moment that you are buying a second hand car. Sure, the price tag and the mileage are important considerations, but most of us would also get a qualified mechanic to examine the brakes, the engine, the tyres, the frame, the battery etc.
The point I´m trying to make is that buying a property solely based on its price and current monthly rental yield is a bit like buying a car because it looks nice.
If your investments are entertaining, if you´re having fun, you´re probably not making any money. Good investing is boring. (George Soros)
It is usually better to own a safe asset generating 7% than a risky one generating 14%. Despite what the glossy brochures might claim, you can´t have the best of both worlds (high income, low risk). If you want to get rich in 5 years time, you need to take a lot of risks. If you want to get rich slowly over 10-20 years, you can afford to choose conservative options as the income and capital growth will accumulate over time.
Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known to anybody. However, I can guarantee you one thing.. those who put an investment program in place will have a lot more money when they come to retire than those who never get around to it. (Noel Whittaker)
Speak to experienced and successful investors and they will tell you to buy a “boring” but diverse range of assets and hold them for a long time. It sounds like the easiest strategy in the world but it is quite amazing how many younger investors miss the point. They hop in and out of assets, buying when they are overpriced and “hottest” and then lock in losses by selling when they fall in value.
Investing is a difficult and very long-term game. While it is easy to say that the right time to buy any asset is when they are cheap, it´s not easy to actually do it. At worst, never buy anything for more than it is worth. It seems to be a fundamental law of human nature that we find all of this next to impossible to put into practice.
Building wealth over a lifetime does not require a lifetime of superior skill. It requires pretty mediocre skills - basic arithmetic and a grasp of investing fundamentals -- practiced consistently throughout your entire lifetime, especially during times of mania and panic.
Investors have different needs to renters and owner occupiers. When choosing a property, the most experienced investors consider both their own needs (wealth protection, income generation, inflation hedge) and those of long term tenants and owner occupiers (great schools, solid infrastructure, low crime rate, recreational activities, realistic access to bank finance and a well maintained and funded local community).
Money not spent or invested depreciates over time and compound interest is a thing of the past. Property is one of the few positive yielding, durable and secure assets available to regular buyers. In a world where other investment products, including government bonds, are more uncertain than ever, property remains a safe and steady option.
If you find a property that looks like an amazing investment, take a very deep breath and figure out what you are not seeing. Probably one time in twenty, it will be a great deal and you just happened to get there first. More often that not, others will have seen it before you and will have passed on it for a reason.
Consider your appetite to risk very carefully. Plenty of people will tell you that you can have it all (high income, high safety) but it just doesn´t work that way. The safest deals don´t have the highest yields, but they are dependable, less time consuming and easier to sell on exit.
Have a plan, follow it and you’ll be surprised at how successful you can be. Most people don’t have one.
Budget for repairs and vacancy periods: all properties, from the very top to the very bottom of the food chain are going to have vacancy periods and repairs that will eat into your income stream. Older properties, cheaper properties and properties in low income neighborhoods will have much higher vacancy and repair costs than newer properties in middle class and upper middle class areas.
Always double-check what an off-plan developer says to you - too many people believe everything they are told by a salesperson. Double check planning permits, local rental rates, comparable sales prices and much else besides.
Invest with more confidence overseas – make sure the deal has a stand-alone yield rather than relying on a rental guarantee.
If you are seeking a vacation home, it is essential that you view the short listed properties and their surrounding areas with your own eyes.