Plan to Invest - January 2020
January 22, 2020 / Written by Rich Harvey
By Guest Blogger, Peter Koulizos, property lecturer and author
“If you fail to plan, you are planning to fail”. This famous quote is credited to Benjamin Franklin. He probably wasn’t thinking about investing in property when he said this but planning is critical to your property investment success.
You might be asking “Why is it important to plan for investing in property?” The length of this blog doesn’t allow me to detail all the answers but here are some of the more important reasons.
Firstly, buying property is a very expensive exercise, which usually involves several hundreds of thousands of dollars, and sometimes millions of dollars. If you don’t buy the right property because you haven’t planned correctly, it is a very expensive mistake. For example, you might be sucked into buying a brand new or off-the-plan apartment which actually decreases in value in the first few years. This is not a smart investment move as the idea when you are investing is to buy property which increases in value.
Secondly, if you have made a mistake through a lack of planning and bought a dud investment, it is very costly to get out of the situation. Transacting in property is not cheap with stamp duty at about 5% of the purchase price of the property and then selling fees adding up to approximately 3% of the selling price. So, if you did buy a dud investment, not only have you missed out on capital growth but to add to your misery, you have to pay for the privilege of buying and selling the dud investment.
Thirdly, investing in property is generally a long term investment. Unless you plan to renovate for profit or develop, most people hold onto their properties for many years. If you buy an investment property which has limited or no capital growth, not only do you miss out on making money on the property you own over many years but there is also the opportunity cost. This means that while you are holding your dud investment, it may not allow you to buy any other property, thus missing out on an opportunity.
So, what does planning to invest in property entail?
A property investment plan can be a very comprehensive document and should be discussed with a Qualified Property Investment Advisor (QPIA). But even before you speak to a QPIA, your first step is to set your goals. In other words, what are you trying to gain from investing in property? For some people, it is to make some quick money or give up their day job. However for most people, they invest in property so as to supplement their income in retirement. They don’t want to depend on the aged pension after they retire or if they plan to retire before they are eligible for the aged pension, they would like to live off more than just their superannuation.
Once you have decided on your goals, you need to work out how much you can spend on a property. This will involve looking at your savings, your income and expenses and having the bank/mortgage broker determine your borrowing capacity. Once you know how much you can spend on buying an investment property, you can start looking for property.
How much you can spend on a property will largely determine where you look and the type of property you can buy. When you do start looking at areas, don’t limit yourself to just one property type in just one suburb. For example, if you have decided that you only want to buy a Californian bungalow in one specific suburb, you are really limiting your chances of buying an investment property. This might be a good strategy when buying a home, especially if you have fallen in love with Californian bungalows but this is not necessarily the best investment strategy. A Californian bungalow is a good style of property to buy but it is not the only style of property. To give yourself the best chance of buying an A grade investment property, you should widen your search to say buying a character/period style property within a number of suburbs.
There are many other factors to consider but as I have almost reached my word limit, here are some do’s and don’ts.
- Do set your investment goals.
- Do your research and educate yourself.
- Do use a qualified professional to help with your planning.
- Don’t get sucked into buying a dud investment from a property spruiker.
- Don’t limit yourself to just one property type in one suburb.
- Don’t fail to plan.
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