Intelligent financial decisions are based on a number of aspects. Having a clear idea of what you are trying to achieve and being realistic about how property investment performs over time are key to getting this right.
In this article, I address a few of the questions that I am frequently asked by investors.
1. How many properties do I need?
A lot of would-be investors get caught up in the romantic idea of owning 10 or 20 properties. Why own lots of properties if they aren’t giving you the results you want? Owning 10 or more properties is a lot of work!
Most people are better off owning 4-5 good quality, debt-free properties that are diversified across 5 major metro areas in great locations that will provide $100,000 passive income without all the stress.
Instead of how many properties do you need, ask, “What value of net assets do I need to create this income?”
2. How do I get the timing right?
‘Timing’ can be broken down into two separate concepts: ‘timing the market’ and ‘time in the market’.
We can look at the property market as a cycle, where property takes around 10 years to double in value.
During these 10 years, the value of property doesn’t grow at the same rate each year. For example, we could have 6 or so years where the market is almost flat and all the growth could happen in the last 4 years.
I come across a lot of investors trying to time the market, but what often happens is that people end up buying nothing because they’re too busy trying to figure out when is the best time to invest.
We still want to buy at the right time, but time in the market is a huge healer. So even if the timing was a bit off, perhaps it took a while longer for the market to grow, you didn’t get quite as much growth this time round, the longer time you own it, the less relevant that will become. Remember that the best time to buy was 20 years ago, and the next best time is right now.
3. Should I buy negatively or positively geared property?
It’s important to consider the pros and cons of both negative and positive gearing. Ultimately, the goal is to have a positively-geared portfolio with income that replaces your earned income. But in the meantime, you need to be strategic about how you build your portfolio.
For example, the loss associated with a negatively-geared property can be offset against other income earned (at the time of writing, Sep 2017), reducing your assessable tax income, thereby reducing your tax payable. A negatively-geared property can be great for your portfolio if it is in a high growth location.
On the other hand, a positively-geared property will boost your serviceability allowing you to buy more property (though you’ll be paying tax on the rental income).
4. How do I stay on track?
Keeping yourself accountable over a long period of time is absolutely essential to building a successful property portfolio. But it’s also possibly one of the most difficult things to do.
To help you, consider finding a property investment coach. This will be someone who is an experienced investor themselves who can provide regular guidance and support. Think of your coach like a personal trainer or a nutritionist – but for your financial health and long-term financial security.
Want to learn more? Join us at a free 2-hour Property Investor Masterclass near you. You’ll have the opportunity to book an obligation-free meeting with one of our expert coaches to discuss your long-term wealth plans.
We teach our clients how to invest wisely, with low risk. But we also teach them how to have an ‘investor eye’ and focus on what’s important.
Find out how you can see with the investor eye (and get better investing results) at a Property Investor Masterclass.
– Sue