I thought I’d start up a thread that summarises the collective knowledge of this vast forum.
Don’t worry so much about the theory, perhaps post a personal experience about an aspect to property investing that you wish you knew about prior to beginning.
Here’s an example to get us started:
That you don’t need to know it all.
When I lack experience, most of my confidence comes from me trying to understand a topic inside out.
However, when it comes to investing, while a solid education in the basics is very, very important, the best way to learn is in the field.
This is because experience adds a context to the information you will learn by reading books, going to seminars etc.
So, my tip would be to be at ease with your investing by looking at it as a journey – whereas trying to know everything upfront will only end in confusion.
In summary, the better way to learn is ‘experience before education’… that is – gain a little bit of experience and then match it with a little bit of education in order to support your learning experience.
My investing journey leads me to believe that there will always be more to learn.
Please, post your own tip or insight and let’s build a really useful database of experiences.
The biggest tip dollar wise I utilise nowadays that I didn’t realise when I started is ;
Always have the title of each property in a different ownership structure to minimise land tax.
We haven’t in the past, but now have every property in a slightly different ownership structure, which in my state has reduced our land tax bill dramatically.
When chatting to the vendor of our last purchase, the sole reason he offloaded the property on two titles was that they, along with 16 others in his portfolio, were all in the same legal entity. Hence the land tax burden simply killed it for him with them being lumped onto one another. Wasn’t a problem in 1964 when he bought them all, but when the State ripped into him so badly it just became too much for him. (Pun intended…for those who don’t live in WA, our State Treasurer is Mr Eric Ripper MLA…bless his little cotton sox).
Having to sell otherwise perfectly good properties because the State taxes you so much for simply owning them is outrageous. Hopefully our good fortune now won’t be undermined by laws changed to our detriment in the next 41 years.
“Don’t try and predict the future, be prepared for it”
Don’t second guess interest rates, whether property is going to be flat for a decade, whether the share market has gone up so much it can only go down, whether there is going to be a world recession as the baby boomers retire and cash out. Instead be prepared for it. This means to invest, and invest in such a way that can cope with the uncertainty of the future.
So this means some or all of the following
1) fix interest rates
2) ensure you have a sizable cash/LOC buffer to cope with unexpected events
3) have income insurance
4) exhaust your LVR limit not your DSR. The thinking here is that cash flow is critical if/when things go wrong. In practice this may mean owning 2 NG properties plus $200k of high yielding shares thereby exhausting your LVR, instead of buying that 3rd NG property.
The investing strategy you started with may not always remain appropriate. Be prepared to change if your circumstances require it ie change in market conditions, change of personal or financial circumstances etc
Remember there are numerous variations to investing eg res/comm/indust; +ve/-ve cashflow; renos; buy & hold/sell and reinvest; max leverage/minimum exposure etc etc You can make money through all of them.
You need to find out what is right for you – and don’t be afraid to change if required.
This doesn’t contradict the advice above about starting, by the way.
When we renovated some flats, we figured that we could reliably increase the rent by a minimum of $5 per week. That equated to $250 per year, allowing for vacancies which was enough at 6.5% interest to afford a breakeven budget of $4000 ($4000 * 6.5% = $250 approx). We also were after a slightly better class of tenant.
As it happened, the rents went up $55 per week (the agent recommend an extra $65 per week, she ws that gobsmacked by the job we’d done) [biggrin] which meant a payout period of under 2 years, plus better tenants.
We didn’t know what the result would be, but we knew why we were doing it and the achievement of the goal was way in excess of our aim.
i am a single female battling to get ahead. I have always worked a few jobs at one time and up until recently i had 2 units. I decided to sell one when i couldnt afford it anymore and am having a break now and just working one job and enjoying myself for a while.
The breaking point for me after all the reading etc regarding investing was when i received my tax return and realised that i would get back a much smaller percentage of what i put in because it is based on your tax bracket!!!
This i did not realise and so fell very short in being able to put back what i thought i would be able to. Luckily i sold for a profit which although i didnt profit on paper, i came out with
enough money to pay back a 2nd loan i had borrowed on my equity to buy the 2nd property but have actually kept this for now.
I hope this helps others and if there is anything anyone may have to offer for when i try it again let me know. I actually work as a property manager but this doesnt help on the investing side.
my most important tip is for all people whether they are property investors or not. GET YOUR FINANCES IN ORDER! This is simply translated as make sure you spend less that you earn and don’t get caught in the consumer trap. Understand the difference between an asset and a liability and good debt and bad debt. Take financial responsibility for yourself and then hopefully give your children valuable knowledge that they can carry with them through life. It is not good to bury your head in the sand. When you have a true idea of your financial position then investment decisions are informed and backed by hard data. This could be your most powerful tool.
When buying a residential invertment property, buy one which 75% of the population in that suburb/area would be happy to live in. In doing so, you will always be able to find a suitable tenant.
Persistence is invincible.
First of all, thanks corrine for being the first forum virgin to share your experience, it makes it that little bit easier for the rest of us!
I found our first investment property a couple of years ago. The owner had subdivided the land, we were buying the existing house and he was building a house on his half. The house was supposed to be finished the following month, so we exchanged contracts thinking that the we’d have our first investment property by Christmas. The work on the house dragged on and so did the approval from council. Almost 6 months later we were still waiting, we had to reapply for the loan, lost the great interest rate we’d locked and paid insurance on a property we didn’t own!
I now know that I was effectively buying my property ‘off the plan’ even though it was an existing house, which meant that the owner had up to 6 months to finish his house. After that period we could break the contract without penalty.
It all ended quite well, during these 6 months, the house increased in value by 13%!
One thing that I’ve learned is that; while the price you pay for a property is likely more than you have in your bank account, it is only the monthly mortgage repayments that you are really risking rather than the total property value. I try to remember this when I start to fear I may be biting off more than I can chew. Let’s face it, if things go awry you can always sell.
My tip is -Don’t attempt to self-manage your rentals to save a few bucks. If you only have 1 or 2 fair enough but you still need a good knowledge base to know all the rights and responsibilities of tenants and owners.
Delegate to the people who know what they are doing.My PMs do an excellent job, although I still keep a firm eye on what they are doing, making sure they’re earning their money!
I agree with ZB Fairlane (nice name), I have always thought that the best time to buy was yesterday… Years spent trying to find that super bargain are years of income and compounded capital gain that are difficult to recapture. Rather than spending years trying to ‘pick the market’, when you buy in an area with sustainable demand, capital growth will look after you over the long term.