Property is generally considered a low-risk investment, however the difference in returns and risk between one property investment strategy and another can be extraordinary, says Richard Sheppard.
In the past 10 years, the Darwin and Perth property markets have grown by around 100 per cent more than Sydney, so if you purchased two or more investment properties in those markets, there’s a good chance you could have around $1,000,000 more equity than if you had purchased in Sydney.
In last month’s column, we outlined three steps on how to safely build a high performance property portfolio: education, advice and research. This month we discuss the remaining steps.
Step 4: Strategy – the road map to success
Strategy is generally a plan of action designed to achieve a long-term or overall aim. For property investment, this includes aspects such as optimum leverage, purchase price amount, type and ownership structure, buffer amount, cash flow management, minimisation of land and income tax, diversification, revaluation and acquisition timeframes.
Clearly, it would be very difficult and time consuming to work out how to do this most efficiently, so seeking professional advice for this step is recommended.
Step 5: Risk management
Property specific risks may include loan interest rate increases, tenant vacancy, property damage, market risk and strategy risk (such as buying off the plan). One of the biggest and less obvious risks however, is loss of your employment income, which can force you to prematurely sell, potentially before the property has had time to adequately grow.
Many of these risks can be managed with insurance, so consider this a must. Market and strategy risks can be significantly reduced using research and professional advice. Good, independent advisors will usually guide against high-risk strategies such as buying long-term off the plan property and provide high-grade research to help minimise market risk by helping you buy in ideal locations.
Tip: Remember to always balance these risks with the cost of lost opportunity.
Step 6: Action and implementation
Let’s face it, you’ll never know everything there is to know, so at some point, you’ll need to judge when your strategy is good enough to implement and dive on in. If you’re still struggling with some of the concepts, or want to do more research, then I recommend you consider seeking further professional advice. When you consider that a $500,000 property grows by almost $1,000 per week on average, every week you delay is essentially costing this much and compounding, so make it a priority and avoid procrastination. Good help and information is out there, you just need to find it and use it.
Richard Sheppard is the managing director of inSynergy Property and Finance Solutions. inSynergy provides professional property investment advice, property market research and specialised mortgage broking services to help every day Australians achieve better returns with lower risk from property. Phone 1300 308 808 or visit www.insynergy.net.au
Guide to leveraging lazy equity
Sydney house prices have more than doubled in the past decade, rising 146.4 per cent in the 10 years to October 2021. As a result many property owners are sitting on huge amounts of equity in their homes.
This guide will walk you through how to leverage your lazy equity and safely invest in a high growth investment property, while also taking the pressure off your immediate financial situation.
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