By Stephen McCarthy, CEO
McCarthy Group
Dreams are powerful things and following our dreams can often lead to major successes. A perfect example of this is Dave Morris, the 29-year-old schoolteacher who wasn't wanted by the Australian Winter Olympic team officials, walked away, came back, and then ripped out a quad-twisting triple somersault to claim silver and become the first Australian male to win an Olympic aerial medal. To top off his success he was the flag bearer for the closing ceremony which shows that he was held in high esteem by the officials. He has quoted on his social media “Successes are for everyone to share as I can only perform because I’ve had help getting here,” and prior to competing at the Winter Olympics he said “I will be doing everything I can to be the best I can be and that in the moment, I will do what it takes to succeed.” He has worked hard to achieve this success.
Perhaps we can take a leaf out of Dave’s book to find out what’s involved in financial success.
So, how do you start building a property portfolio? Analysing the property market is almost a national pastime in Australia, but how do you know what is the truth or what will work best for you? I’d like to share with you a few of the fundamental principles that have led to successful property investment portfolios for many of my clients.
Two Fundamental Principles
It’s no big secret; the two things that successful property investors look for are Yield and Capital Growth. The price is a prevailing factor across both of these two elements, as the investment has to fit into your budget, but the yield that the property will return by way of rental income and the long term capital gains are the reasons why many successful people turn to property investing as a way to grow their wealth and minimise their tax.
For many of our clients, they have already seen the value of property investing. Their family homes are typically the best investments that they have ever made. So wouldn’t it be rewarding if you could just buy another one? Or two?
Of course your family home is more than just a savvy investment, which is why it’s important to look at any investment properties with a cool head and really analyse the numbers.
Use your head and not your heart
Investing in property is a numbers game and you must keep emotions out of the decision. The most successful investment property isn’t necessarily in a location where you would want to live or to your personal taste. However, it does need to deliver on the yield and capital growth principles discussed earlier. Some things for you to consider when looking at investment property are:
- Is it better to buy an apartment or house?
- What are the benefits of a new property versus an older one?
There are definite advantages with both of these questions, but do you know what they are? Let’s take a look at those.
In my experience the high growth “Double Income Two Kids” sector of the rental property market have a definite preference for modern, detached housing with a backyard. This property also needs to be in an area with easy access to transport.
There are also tremendous tax benefits when you look at new houses. The depreciation that you can claim on new houses provides substantial tax benefits for investors. The land value will ultimately go up over time, so the general rule of thumb for maximum returns both in the short and long term is new, detached housing.
Understand the market cycles
Property investing is also impacted by the cyclical nature of the global market. Understanding this investment cycle will also lead you to make sensible investing decisions. There are identifiable windows of opportunity that successful property investors recognise. Knowing that indicators like falling valuations and interest rates, mean that the investment cycle has shifted. In some parts of Australia it has shifted from a buyer’s market to a seller’s market, so caution needs to be exercised here.
Anticipate the demand
In Australia, there is a chronic under-supply of affordable housing. According to the latest estimate by the Housing Industry of Australia, there is a shortfall of 80,000 and our population growth at 1.4% is one of the highest in the developed world. The last Census report tells us that nationwide the typical household rent has jumped 41%, which makes it a highly attractive proposition for those in the investment property market! Do you know where these growth areas are? McCarthy Group sleuths have a proven track record of pinpointing growth areas that deliver both strong rental yields and are poised for capital growth.
Conclusion
Naturally, investing in property shouldn’t be taken lightly. Good research, understanding of the investment cycles and property growth locations, and an unemotional assessment of each of these factors must be made. McCarthy Group has helped many investors take the practical steps to reach their dreams of financial freedom by building a portfolio of investment property.
Why not download our plain English guide to the Principles of Property Investing? It’s possible that you too could have an alternative plan to years of working, and enjoy a higher standard of living as a result. Dreams can come true, and they can come true for you just as Dave Morris found out so vividly.
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