Investment Property Strategies

  • Where do I start

    Without doubt the most important place to start when starting your portfolio is to seek professional advice.

    In this section you will discover important factors that you may not have considered which are crucial to building a successful portfolio.

    Understanding borrowing capacity, leveraging capabilities, cash flow management plans, property selection, yields, growth factors are just some many variables that need your full attention.

    You need a Property Wealth Plan.

    Your property wealth plan will be your compass on your journey to achieving your financial goals.

  • Strategic Criteria

    Property investment is no different to playing chess in that a well thought out strategy is key to your success. Except what’s at stake is very different.

    During a complimentary coaching session a Property Wealth Planner will cover the following principles and criteria which is crucial to building a successful portfolio.

    Leverage

    This can be one of you most important principles to master.

    • Your ability to succeed by getting professional advice
    • Your ability to more properties sooner and fast track your results
    • Your finance to enable you to build wealth

    The below diagram clearly demonstrates the effects of leverage:

    Why we invest in property?
    Investment

    $100k

    $100k

    $100k

    Investor

    1

    2

    3

    Leverage

    50%

    80%

    95%

    Total Investment

    $200,000

    $500,000

    $2,000,000

    10% Growth – 1yr

    $220,000

    $550,000

    $2,200,000

    Gross gain

    $20,000

    $50,000

    $200,000

    Return on investment

    20%

    50%

    100%

    By simply focusing on a 5% deposit when buying property rather than 20% you have doubled your investment.

    Master Facility

    Understanding the finance will give you the confidence to succeed. Any concerns regarding cash flows, impacts to lifestyle etc. can be elevated when you use a Master facility.

    Master Facility

    Benefits to implementing a Master Facility:

    • Equity can be used to cover deposits, stamp duty and other associated costs
    • Releasing your equity first means you don’t have to secure the investment properties against the home therefore avoiding cross collateralisation
    • The Master Facility also acts as a buffer to cover any holding cost and unexpected costs – therefore no impact on lifestyle

    Understanding your Borrowing capacity

    One of the first things you should be doing before considering a purchase is to research your borrowing capacity. This goes a lot deeper than simply asking the bank whether they will give you the loan.
    Most Australians don’t own more than 2 investment properties which will not achieve their financial goals. To be successful you require a portfolio properties.

    So why is it that most investors stop at two?

    Answer: For most of them they have no choice as their borrowing capacity will not allow it.

    When speaking to your broker or mortgage broker the most important question you should ask is not whether the bank will lend you money to buy an investment property but:

    • If I buy this type of property (example – negatively geared) will it prevent from getting a loan to buy the next one?

     
    If the answer is yes – don’t buy it.
     
    See the below case study for more information

    Diversify

    We’ve all heard the old saying – don’t put all your eggs in one basket. Well this is so true for property investing. Diversifying enables you to spread the risk and increase the chance of benefiting from great returns.

    There are many elements necessary to balance a property portfolio explained in the diagram below:

  • Case Study

    Combined income: $110,000

    Rental income on three investment properties: $50,000

    Monthly repayments on current mortgage and investment properties: $6,500

    Peters approach the bank for a $400,000 loan to purchase another negatively geared investment property.

    borrowing power

    As you can see above when entering the rental yield of 4% which is approximately $16,000 to the $60,000 they were already receiving from the other three investment properties the bank is still only prepared to lend $247,000.

    Peters approach the same bank for a $400,000 loan but this time they present figures on a positively geared property.

    borrowing power

    The positively geared property is generating rental yield of 9% which is equivalent to approximately $36,000 pa. With the increased income the bank will lend $413,000 which is enough to continue building their property portfolio.

    People who are looking to build wealth can’t forget that in order to build wealth you need to invest which usually involves borrowing funds. If you invest in strategies that are low yielding you will eventually have a serviceability problem and therefore can no longer borrow to invest. It is important to invest in growth assets but not at the expense of not being able to grow your portfolio.

  • Property Strategies

    With so many strategies to choose from it can quickly become overwhelming which leads to procrastination.

    Our Property Wealth Planners will de-mystify the strategies that are best suited to your circumstances and ensure you build a balanced portfolio.

    While some companies only promote their own strategy we are strong believers that a diversified portfolio that includes many different strategies is by far the best approach.

    All strategies have their benefits and can be used collectively to leverage your results.

    Strategy Matrix

    Strategy

    Growth

    Cash Flow

    Depreciation

    Comments

    Value Add in Metro locations

    Strong

    Negative to neutral

    Medium

    Great for building equity into property from day one

    OTP Apartments in Metro location

    Medium to strong

    Negative to neutral

    High

    High depreciation, yields, low stamp duty but avoid over supplied areas

    Cash Flow Positive House and land packages

    Low to medium

    High

    High

    Great where CFP income and low establishment costs are required. Location very important.

    Development projects

    Medium to high

    Medium to high

    High

    Can generate significant returns but comes at high risk. More suitable for experienced investors

    Syndicates

  • Exit Strategy

    How you exit property investment is just as important as how you enter. It’s how you end the game that will ultimately determine your success.

    There are many strategies to consider and while your exit strategy might be many, many years from now it is important to understand your options.

    We always advise that the best way to approach this issue is to include not only your Property Wealth Planner but also your accountant and financial planner.

    Options could include:

    • Balancing the debts
    • Sell all properties
    • Leave some to the kids
    • Transfer property into self managed super fund
  • Testimonials


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