Investing in property is a proven wealth-growing strategy which has paid off for many Australians. Yet too many people ruin their prospects of success in the market because they have the wrong mindset.1 Failing the financial literacy test
Even if you seek the services of a specialist property adviser (and you should) it’s important to understand fundamental investment principles and to be financially literate. A reputable, one-day property investment seminar can teach you a lot about how to make informed decisions, and this knowledge can then put you on the path to securing your financial future. 2 Foregoing professional advice
Closely linked to a lack of education is investors’ failure to seek advice from an expert property investment advisor. Seek out someone with specialist property market experience, rather than a financial planner with general knowledge. Advisors should be able to demonstrate they are making informed investment decisions on the back of market research from reputable groups such as BIS Oxford Economics (formerly BIS Shrapnel). 3 Ignoring lazy equity
There’s a real lack of understanding about the amount of underused equity in people’s homes or investment properties. For example, the growth in the Sydney property market in the past few years means many assets have recorded a rise in value of 15 to 25 per cent – which equates to about $100,000 to $200,000 of extra equity that could safely and sensibly be used to reinvest. You should re-evaluate your equity position every 6 to 12 months. 4 Fear of debt
The aim is not to overstretch yourself financially, but to utilise your borrowing capacity for maximum effect. Having a clear understanding of your equity position and creating a safe borrowing strategy is the key. Many of my clients are surprised to know that it can cost just $50 a week to fund an investment property. To get peace of mind, have a buffer. You can borrow an extra $20,000 to $50,000 just in case something untoward happens. This buffer, along with implementing appropriate risk-management steps builds in added protection. 5 Making risky decisions
On the flip side, some property investors roll the dice when there is just no need. Topping the list of risky behaviour is buying a property off-the-plan.
The biggest risk of long term off-the-plan purchases is that loan approvals from banks only last six months, so if the build is further away from completion, you run the risk of not being able to obtain finance to settle. If this happens, you can lose your 10 per cent deposit and more, which could send you bankrupt. Off-the-plan properties are usually overpriced and oversold – and they often under-perform – whereas a completed property typically offers a safer, higher-performing asset more quickly.
Richard Sheppard is the Managing Director of inSynergy Property Wealth Advisory. inSynergy provides professional property investment advice, property market research, specialised mortgage broking services and is an accredited investment property buyers’ agent. Visit www.insynergy.net.au or phone 1300 425 595.
Important Note and Warning: This information is general in nature and should not be considered personal tax advice. We highly recommend you discuss these concepts with your accountant, property investment adviser and investment finance mortgage broker jointly to ensure any considered concepts are suitable for your personal financial situation, as one effect of the concept may negatively impact another part of your plan.