propertybuyer Market Update, February 2011
By Rich Harvey, Managing Director propertybuyer
Welcome to your February propertybuyer market update.
In this edition we will look at;
- Overcoming your greatest fears in property investment
- Introducing Our New Buyers' Agent Specialists
- Creating the Ideal Investment Portfolio - Seminar 24th Feb
1. Overcoming Your Greatest Property Investment Fears
Fear can motivate or paralyse us. We all face different fears each day but it is how we deal with those fears that will determine our quality of life and our future. Another word for “fears” is “risks”. We can’t totally eliminate the risks associated with property investment, but we can manage these risks to ensure we sleep better at night. We don’t have a crystal ball to see what the property market will be like in 10 years but with careful research and analysis, you can make an informed decision today that will deliver a positive return in the future. >Mark Twain said that “Courage is resistance to fear; mastery of fear - not absence of fear.”
As an investor you are likely to go through a rollercoaster ride of emotions when making your decision to invest in a property. At the start you may feel optimistic and excited about buying an investment property, then you read some media headlines about the market dipping and you feel some anxiety, fear or depression and begin questioning yourself (“have I made the right decision?”). Another negative setback may take you into panic or depression. Then your logical mind kicks in and says “it’s Ok I’m a long term investor” and you may feel a sense of hope, relief and finally optimism again. It’s important to understand how these positive and negative emotions affect your decision making.
I recently conducted a survey to ask a group of property investors their greatest fears. Here are the results (not listed in any particular order) and the way you can manage those fears:
Rising interest rates
The media always speculate about interest rate movements. Fixing your interest rate is one way to minimise exposure to interest rate rises. However, locking in a fixed loan rate means you may have to pay break costs if you want to pay out the loan early and interest rates have fallen. A variable mortgage means you are exposed to rate rises. Or you can take an even way bet and fix part of your loan. I have personally found that variable interest rates give the best flexibility to refinance and seek more competitive rates from lenders.
Many people are very fearful of losing their job and being unable to continue mortgage repayments on an investment property. The best way to manage this fear is:
Maintain an investment account with a $10,000 buffer (or set up a line of credit after revaluing your property) to cope with any emergencies.
Negotiate with your bank to get a discounted rate on the loan.
Ensure you have income protection insurance in case you get sick or incapacitated.
No capital growth
The key to buying the “right” property is to research extensively and buy in areas with high predicted capital growth and solid rent demand. Find out the demographics of the suburb, population growth and other proposed infrastructure development. Ask about:
Is the area being gentrified?
What types of development applications are in council at present?
Is there a demand for the type of property you are going to buy?
What kind of people live and rent there?
The last thing you want as an investor is to find out in 10 years that your investment was a dud. The trick is to buy properties in high demand areas, close to water, with unique features, lifestyle attractions and proven history of capital growth. Buy property with the correct physical features that tenants and owner occupiers demand (eg good size rooms, balconies, decks, natural light and storage space). Investigate the past and predicted capital growth rates of suburbs.
You can download our free Top 20 Investment Criteria checklist to help guide your search orengage our specialist buyers agents to do the research for you.
Lack of tenant/ Vacancy factor
Before investing in an area, speak to several property managers and find out the vacancy factor, what type of property is in most demand and type of people wanting to rent in the area. Set the rent at the appropriate market rate. You may be better off renting a property for $10 a week less than waiting 4 weeks for a new tenant. Or you could offer 1 or 2 weeks rent-free! Upgrade the features on your property to increase the appeal for a tenant – repaint the walls, add air conditioning, include furniture or throw in a whitegoods package. Choosing a good property manager is the key to managing vacancy factors. We use a checklist to screen property managers before recommending to our clients. Aim to lease the property in the peak seasons – typically February/ March or November, and aim for a 12 month lease.
Timing market cycles- getting timing wrong
Investors that follow the herd tend to get average results. Market sentiment is temporary and changes over time. Down markets are usually the best times to buy property at a discount. The market sentiment can be used to your advantage when negotiating. The current economic conditions are very unlikely to lead to a property market crash. In fact the Reserve Bank in its most recent economic comment said it is comfortable with its policy settings. Trying to pick the exact/ optimal time to invest is a very difficult task. Smart property investors take a long term view of investing to ride out the cycles without letting their emotions distract them from the end goal – this is where patience is truly a good virtue. Capital appreciation does not occur in a uniform manner year after year. Just as the share market rises and falls (but on a more volatile basis) so does the property market ebb and flow depending on demand and supply. The key to success here is to select areas with a high demand/ low supply that has a history of sustainable capital growth and is likely to continue having these drivers of demand in place for the future.
If you wait too long for the perfect conditions for investing then you are never likely to start. The longer you delay the decision to invest the longer it generally takes to achieve your wealth goals. Investing in property helps leverage your wealth with the magic of compound interest. Procrastination is the thief of time – the opportunity cost of time is great to those that put off taking action. Many people spend more time planning their annual holidays than planning an investment purchase.
2. Introducing our New Buyers' Agent Specialists
Our team of buyers’ agents is growing this year and I’d like to take a brief moment to introduce you to some of our new team members. Anna is our new specialist for the inner-west of Sydney having lived and worked in this area for many years. Stewart is a skilled buyers’ agent helping investors source high yielding cashflow investment properties and also servicing our buyers in the Hills and North-west surburbs. Andrew, one of our research analysts, brings a strong valuation and research background to support our team of buyers’ agents.
Anna Rorke (Buyers’ Agent) has over 20 years of experience as a property investor and licensed Real Estate agent. Whilst working as an agent, she was awarded as a member of the L J Hooker Captains Club which incorporates the most successful 15% of the company. Through her effective communication skills and in-depth understanding of the Sydney property market, she brings a high level of personal service and success to her clients. Anna has an in-depth knowledge of the Inner-West market and loves to delight her clients with positive energy and high standards.
Stewart Fraser (Buyers' Agent) offers a wealth of experience in real estate having honed his skills as both a sales agent and buyers' agent over 10 years. A keen negotiator, Stewart provides his clients with knowledge of the Sydney market. Stewart puchased over 400properties at auction and by private treaty. This detailed knowledge of the purchasing process and strong buyer empathy has proved to be a great advantage for his clients in terms of negotation and communication. Stewart worked in his grandfather's thriving Eastern suburbs real estate office before enjoying an 11 year career with the NSW Police where he received the Police Medal for Ethical Service. His is a regular volunteer with the Salvation Army, an avid property investor and a Licensed Real Estate agent and Auctioneer with a degree in Social Sciences and Psychology.
4. Seminar - Creating a Positive Cashflow Property Portfolio
Have you ever wondered how some property investors manage to buy multiple properties and create a large portfolio?
How many properties do I need to retire?
Or is it more about the value of properties?
What is the right balance between cashflow positive and growth properties?
How do I secure finance for so many loans and how can I afford it?
How do I protect the equity I have created in my properties?
What size finance buffer is adequate?
Should I diversify across different states to reduce land tax?
Which property types provide the best overall return?
What structure should I use to minimise tax?
Real life portfolio building examples
If you have ever asked any of these questions then this seminar is for you! We will cover these meaty topics and more on the night. Bring your notepad, pen, calculator and an open mind to learn.
Date: Thursday 24th February 2011
Time: 6.30pm to 8.45pm