10 critical rules successful Perth real estate investors can’t afford to miss in 2021
For Perth investors that want to generate wealth, real estate is a prudent investment option. As the housing market typically appreciates in the medium to longer term, investing in property is an excellent way to build a healthy investment portfolio.
With the Perth property market seeing an 8.5% growth in housing prices in the past 12-month cycle, investors in this region have seen material returns on their capital. However, as with any other commercial initiative, particular nuances separate the successful investor from the rest.
In this article we look at ten important guidelines successful Perth real estate investors should follow.
1) Take a long-term view
As with any financial investment, you need to take a long-term view when investing in property. In some rare circumstances, you may be able to turn a quick profit if you time it perfectly. However, holding onto your property is a proven wealth creation strategy.
The value of property only appreciates in the long term, which is why it is the preferred collateral by banks. This fact is evident if we consider that the Australian housing market saw the median house value grow by 412% over a twenty-five-year period.
Investing in property and taking a long-term view also offers other benefits for the savvy investor. It smoothes out market fluctuations that occur in any market regularly and provides more time for the capital to appreciate.
It also costs less in transfer fees and commission and gives you the time you need to hone and adjust your investment strategy.
2) Look for capital growth instead of yield
Another rule that can help you become a successful property investor is to set capital growth as your objective instead of focusing on the investment’s yield. As a rule, any rental income you receive from your property should cover its expenses.
The wealth creation component is derived from the growth in the property’s value. Property investors that grow their wealth often take a strategic approach.
First, they purchase a property in an area that is appreciating in value. Then, they increase the value of the property by reducing its debt leverage or by renovating. By increasing the value of the property, they improve the financial health of their portfolio. As an added benefit, newly renovated properties in good areas also offer a greater yield which can help the investor achieve financial freedom.
3) Try not to speculate
As mentioned, successful property investors take a long-term approach to wealth creation. If your strategy is to buy a property, renovate it and sell it as quickly as possible, you are speculating and not investing.
Although this strategy does offer some quick returns if you time your purchase and sale perfectly, it does not increase your wealth. Converting prime assets like real estate into cash does improve your liquidity but does not offer the security of a long-term property investment.
Savvy investors often use their existing property portfolios as collateral for further investments. This approach means they do not need to part with any cash but rather leverage their current assets.
Adopting this approach may cost a little more in interest charges from your bank. However, once all debts are paid, you have grown your wealth and asset base and still have your hard-earned cash on hand.
4) Stay on track
Successful property investors stay on track. They formulate an investment strategy such as buying property in an up-and-coming neighbourhood and stick with it.
Distractions like cryptocurrencies, tax minimisation strategies and booms in other investment sectors do not detract the savvy property investor from their goal.
Successful property investment always takes a long-term view and staying on track is a fundamental part of that strategy. It weathers any market fluctuations and other impactful events that increase risk but then subside in the short to medium term.
5) Location, location, location
As with any other investment such as financial policies or stock market shares, there are good property investments and some that are not.
Ideally, you want your investment property to appreciate in value over time while paying for itself. Since rental income is your primary source of revenue, an investment property in the right location is vital.
Savvy investors look for trends and invest in areas that are up and coming. This approach ensures the price they pay is still reasonable and allows for a greater return and higher rental yield. However, unless you spend enough time in certain areas, identifying the perfect investment location can be challenging.
Leveraging the services of property management specialists can help you maximise your portfolio by providing the needed skill and expertise.
6) Take a holistic approach
When we talk about investing in property, we always talk about a holistic approach that factors in a portfolio, personal circumstances, and unique long-term financial and lifestyle objectives.
Successful investors understand that to see actual wealth creation and diversify risk, they need to own several properties.
Taking a holistic approach and blending your portfolio not only mitigates risks and helps you weather any market fluctuations. It also strengthens your collateral with financial institutions improving your investment flexibility.
Taking a holistic approach means also factoring in the right debt instruments and ensuring the right property finance solutions in place to achieve long-term objectives.
7) Know your cycles
Like every other business, the property market is cyclical, with the typical cycle following a known trend. As investors buy property in an up-and-coming area, prices increase. Eventually, the prices in the market reach a plateau.
This event typically occurs due to an affordability crisis or an oversupply by developers flooding the market with new developments. Prices start to rise again as economies shift, and there is more demand than supply. This property cycle could apply to an area, a city, or the entire country. However, within the property market, certain areas withstand these forces better due to their location.
Successful investors buy low and sell high. Knowing when to enter or leave the market is vital. As with any other investment, the best time to buy is when everyone is selling and sell when everyone is buying. However, as with all other assets, the fundamentals still apply.
Investing for the long term, purchasing a property in the right location, and ensuring your rental covers your expenses is vital.
8) Look for A-grade property
Successful investors buy properties that deliver capital growth and the promise of rental income that at the very least covers the property’s expenses. Taking these factors into consideration, it is vital that your investment property have a solid appeal to the rental market.
Even if you get a great deal on a property in an outlying area, if you cannot find a tenant to rent it, your investment will cost you more in the long term due to its poor yield.
9) Consider the socio-economic environment
Another factor that savvy property investors need to consider when pursuing a property investment strategy is changes to the socio-economic environment. For instance, the COVID-19 pandemic has shifted the landscape. Another current example are potential APRA changes to guidelines regarding investment lending policies.
With workers and businesses seeing the benefits of this model, people may no longer need to stay close to work, a factor that has driven neighbourhood popularity in the past. Instead, professionals that work from home may prefer to move out of the city for a better quality of life.
Again, as with any other investment asset, keeping your ear to the ground and staying on top of current affairs can help you time your entrance.
10) Get support from a great team
Successful property investors surround themselves with a team of specialists.
Critical to achieving successful outcomes for Perth property investors is choosing and working with specialists and experts who understand and are experienced in the wider Perth property market. Along with property management solutions, you may also want to access finance or insurance services for your current and future properties.
The right Perth property management team can offer a holistic approach to your property assets with proactive property management, the right property finance and insurance solutions and are better equipped to develop long-term strategies that align with your financial and lifestyle goals.
Ready to work with Perth’s best?
If you want tailored and knowledgeable support, access to leading property finance solutions and a property manager that knows how to accelerate your return on investment, we’re here to help.
HERE Property offers almost 40 years of experience in the Perth market. Our expert team is 100% focused on simple, smart, and proactive property solutions.
To discuss how we can help you take a holistic approach to your property investments, contact us today.