A useful list of hard won property investment lessons, learned the hard way during my own adventures in the world of property investing.
Learn from other people’s mistakes!
- Investments should enhance your financial comfort level, not pick your pocket.
- Capital gains may make you wealthy, but cash flow will pay for your groceries.
- An investment property is a stand-alone business, manage it accordingly.
- Property provides the imaginative investor the opportunity to create value. Shares can’t do that.
- A property is only worth what someone is willing to pay for it. No amount of wishful thinking will change that.
- Analyse all properties as if they were potential investments. Yesterday’s “dream house” will seldom comfortably transform into tomorrow’s cash flow positive investment property. Life happens, as many “accidental landlords” will attest, so be prepared!
- Property is one of the few asset classes where it is possible to add value. For example extending, subdividing, redeveloping, zoning, planning permission, etc.
- Low cost is not the same as cheap.
- Property transaction costs are huge: stamp duty on the way in and capital gains tax on the way out. Be sure of your numbers before committing to a purchase.
- Luxury facilities such as lifts, porters, swimming pools and gyms are features that your tenants get to enjoy, but very expensive for the investor to maintain.
- Don’t let your own personal tastes influence your property selection. Successful property investment is all about the numbers. You don’t have to live there!
- Things change over time, so remain focussed and pay attention. Interest rate movements or local employment prospect changes may significantly alter the investment prospects of an existing investment property.
- A good mortgage broker will more than pay for themselves.
- In the hands of a responsible investor flexible financing options such as lines of credit, offset accounts, and redraw facilities are incredibly useful tools.
- Refinancing is generally preferable to selling, play the long game to achieve capital gains.
- The average interest rates over the last 100 years is 5.45%. Since records began 324 years ago the average is 4.71%. Plan accordingly.
- Organised, proactive, reliable and timely conveyancing solicitors are creatures of myth and legend.
- Short duration leasehold property titles are a form of serfdom. Long duration leaseholds aren’t much better.
- “Location, location, location” is a cliché for a reason. Buy in the best location you can afford.
- A crap property in a great location will generally appreciate in value faster than a great property in a crap location.
- No matter how beautiful a property, a crap location is still a crap location.
- Beware of properties in a one employer location. It sucks big time if the employer downsizes or departs.
- Property maintenance costs are inevitable. The maintenance cost profile of a standalone dwelling is erratic, while the service charge of a well run building evenly spreads out those maintenance costs over time.
- Beware investing in a complex comprised of mostly owner occupiers. They may want landscaped gardens and gold plated vanity signs for the development, but those things cost money without adding value to your investment.
- Managing a property costs time and money. Always factor management costs in your analysis, even if you plan on self-managing initially. Not doing this is just lying to yourself, as it places no premium on your time.
“Not factoring property management cost into your analysis is lying to yourself“
- In general the property market provides a smoother ride than the stock market, but stocks don’t have toilets that need unblocking in the middle of the night.
- If you enjoy a simple life or have a low stress tolerance, consider a REIT instead of owning directly.
- As a landlord, tenants are your customers. Treat them accordingly.
- Tenants won’t look after your property the way you would. Stuff will get broken, damaged or stolen. Get over it.
- Christmas and the start of the school summer holidays are the worst times of year to be seeking a new tenant.
- Tax minimisation is a terrible investment driver.
- The government can and will change the rules. Ensure each property makes sense as a business proposition in its own right. Before tax.
“The government can and will change the rules.”
- If commentators, experts and gurus really knew what they were doing, wouldn’t they be out there actually doing it instead of trying to sell you their “expertise“