Over the years, I have become a very successful investor by sticking to these Four Golden Rules. When I first started out I was a little wet behind the ears and inexperience mixed with enthusiasm, sometimes led me to make a choice I would later regret, but since I became clear on these rules I have always made the right decision.
Rule 1 – There is Always Going To Be Another Property
If you are searching for the deal of a lifetime, that one big deal that will set you up for life, then you are never going to be successful. Now don’t get me wrong here, I am always out there searching for great property, but if there is one thing that over 20 years of investing in real estate has taught me, is that there is always going to be another property.
Thanks to good marketing and years of conditioning we have been led into this scarcity mentality where we compulsively feel that if we do not get it now we’ll miss out. This is exactly what the sales people chasing your money want you to believe but it is completely untrue.
Never get caught up in the “you have to buy now or else” hype that has been drilled into our heads. You are a professional investor with a long-term view of your portfolio and there is always going to be another property.
Do not confuse this with an excuse not to take action because that is certainly not the case. Your long-term success is going to depend on how much action you take that is consistent with your strategy.
Developing the mindset that there is always another property and always another deal just gives you a position of strength when negotiating.
You see, whenever a negotiation takes place it is the one who’s prepared to walk away that has the power. If the vendor or sales person wants the deal more than you, then rest assured the price is going to be much better for you than if the roles were reversed.
Rule 2 – Know the numbers upfront
This leads me directly into rule number two, paying the right price and knowing the numbers upfront. You need to consider property investing just as you would run a business. Never buy a property without first undertaking your proper due diligence and research and knowing exactly how much money you will be paying or making each week.
It is important when you are looking at a property to know what it is valued at in the current market conditions. Have a search on the Internet and you will find a heap of free or inexpensive tools that’ll give you recent sales in the area, median pricing and market trends. You need to do your research and come to your own decision.
Remember you are not purchasing a home to live in, rather a property that you are going to rent out for profit. Although the property you are purchasing has to be liveable and practical to your tenants, the colours on the wall, type of tile used and overall décor will not affect your rental income, so make sure you get a standard modern look and don’t let your personal taste get in the way of a good investment choice.
Rule 3 – Sticking To Your Game Plan
You have invested the time to understand the different types of property investing and decided upon the strategy that works best for you. Now do not get caught up in the hype and change strategies mid flight because you see the opportunity to make a few bucks.
Property investing is a lot like planting a fruit tree. It takes time and effort to plant the tree and nurture it, until it starts producing fruit. If you kept digging it up and moving it to a different location, expecting it to produce fruits instantly or chopping it down for firewood it is never going to produce fruit.
However, if you plant it, nurture it and leave it alone it will produce fruit in a few short years and then continue to produce fruit for many years into the future. It is exactly the same with property investments.
The best strategy is buy and hold. This is what I prefer because it is 100% passive and exposes me to the least amount of risk. This is the same strategy I developed 20 years ago and I have never deviated from it. I have invested some of the returns into other ventures but this has only ever been the fruits and not the tree.
Rule 4 – Select The Best Properties In Good Locations
You are not an overnight investor chasing quick bucks, so it is important that you look for the best properties in good locations. Ultimately you are looking for properties with strong rental yields, good long-term capital growth, and maximum taxation benefits. Personally, I do not like to keep all of my eggs in one basket, so I have made a deliberate effort to diversify my portfolio with different property types in different locations. So there are three questions you need to ask yourself about any property you are looking at purchasing.
- Are You Going To Buy New Or Old
Buying a new property might not sound as exciting as buying the good old renovators delight. However, if you are like me, and looking for good passive properties then this is probably worth considering. There are a number of benefits to purchasing new properties because basically everything inside them is brand new and covered by a builder’s warranty. This means that at least for the first four or five years you can count on almost zero maintenance.
Secondly, there are substantial taxation benefits to purchasing a new property which makes it a much more attractive proposition. Now of course you will need to seek out your own advice to get specific information relating to your circumstances. What you will find is the depreciation of the building and it is fixtures and fittings will often make a new property more profitable for you, compared to an older property.
If on the other hand you consider yourself a handyman, capable of renovating and improving a rundown property you could add considerable value and capital gains by doing so. My only advice and the reason I have avoid renovations is because when you actually work out the time and money you have spent improving a property compared to the capital growth, often you find you have worked for a lot less than minimum wage.
- What is the make-up of the area?
Is the area full of students, young professionals, families or retirees? Also, have a look at the vacancy rates, unemployment public transport links, and crime rates before deciding to invest in any area.
Do not make decisions on an area based solely on price. It has to be based on the value. See you are searching for capital growth and strong rental yields; the only way you are going to find that is if you buy in the right areas.
- What Are Most Owner Occupiers Purchasing?
If you purchase a property that is appealing to owner-occupiers as well as investors, then if the time ever comes that you need to sell it you will be in a much better position. So it is important in whatever area you select that you purchase a property type which appeals to the owner-occupiers in the area.
This will also attract a better quality tenant who is more likely to treat it like their own home, take better care of the property and stay there a lot longer.