Education is key and it is not just about listening to a few of my videos. There is so much to know in this industry and so many decisions you need to make along the way. The better you are educated on the area, the market, the street and the property itself the more confident you can be that you are going to achieve above average returns.
2. Understanding the Property Market
Most people don’t really understand the property market. There are so many books about investing that are filled with garbage. They don’t look at the economics, trends or patterns and thus fail to educate readers on what drives the market, the triggers, the importance of timing, corrections and when they may occur.
I’ve been there before. Like most people I have blindly followed the advise of my neighbour, friends, spruikers and my financial advisor. A lot of my knowledge has been gained from experience and often from making mistakes. I’ve had a granny flat burn down, a house trashed from a knife fight, I’ve over speculated and I once lost $30,000 on a crappy piece of regional land. I’ve bought and sold property in the wrong areas at the wrong time and I’ve learned my lesson.
3. Timing is Everything
A good example of this is in a story I read last night by the Economist Phil Anderson. In 2010 an Australian Property Investing Company went over to America, just as property was hitting rock bottom and they bought 112 vacant lots off a developer for $360,000.
It’s 2017 now and they just sold that same site to another home builder for $6 million. They were a big company, and bought 25,000 of these distressed lots in total. You can almost hear the cash register ringing in their heads.
To me that is the perfect example of how timing is absolutely everything. If you can time the cycle and buy at the right time and sell at the right time, there’s some money to be made in this game. Whether that is buying in Sydney in 2010 and selling out in 2017 and making an 80% gain or whether it is a much bigger picture like the example I just mentioned. Timing has a crucial role to play throughout the cycle and to the success of your investment portfolio.
If you’re interested in timing, I recommend reading Phil Anderson’s The Secret Life of Real Estate and Banking. It’s a heavy book to read but well worth it as it helps you understand what’s happened for the last 250 years so you can capitalise on investing.
4. Capital Growth is Key
This involves buying high quality markets, high quality locations with something unique such as water views, properties close to the CBD, transport, quality schools or new proposed infrastructure. These are the features you need to target to achieve capital growth.
The concept of buying regional markets and holding them forever for $100 extra per week in rent only works when interest rates are at 4%. When they correct back to historical long-term averages which are 5, 6, 7% all of a sudden your cash flow position changes.
If you’re not getting capital growth, I’m not sure why you would take on the risk of investing in the market. If it’s not a quality market with unique attributes like in Sydney, Melbourne, Brisbane with strong population growth, strong job growth and strong infrastructure growth you won’t see the consistent capital growth. Some major regional markets like Perth, Wollongong, Newcastle, Sunshine Coast and the Gold Coast can see growth as well.
Capital growth is key, so stick to the fundamentals and don’t try to get rich quick because it’s not going to happen.
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5. Cash Flow
You might work out your cash flow position based on the current conditions when purchasing a property but these conditions can change. When interest rates go up and you lose a tenant in a couple of properties for a period of three months and you can’t get a job, that’s when people are forced to sell properties.
I used to put everything on the line when I didn’t know any better and I’d leverage myself completely up to 95% loan to value ratios. I would do absolutely anything that I needed to do to buy. These days I use bigger deposits. It’s safer and lower-risk investing. Today I time the market and make sure that everything I buy will completely pay for itself up to a 6 or even a 7% rental return.
6. Buy Properties with an Up-side
This is one of the big ones that I’ve learned recently. If you can be an active investor, you will put yourself in a much better position longer term. An active investor might mean educating yourself on the market to a point where you can buy under market value. It may mean being patient and waiting for that distress sale, that divorce sale, that deceased estate or something with an issue to come up. It might mean waiting for market timing. It may mean renovating, adding granny flats, adding bedrooms and bathrooms, building splitter blocks, townhouses, etc.
Having a clear strategy or path for the future that is simple enough and actionable enough to help you get to where you want to be longer term.
Strategy is crucial. It is about knowing where you are, where you want to be, when, and how to close that gap so that each step you take gets you closer to your direction.
8. Understanding When to Buy and Sell
This comes back to timing more than anything else but I used to think that property was something that I was supposed to buy and hold onto for the rest of my life. The Australian Property Market moves in a cycle. It goes up and it then flattens for a period of time before repeating again.
A good example is if you had bought a two bedroom unit in Sydney in 2011 on Cronulla Beach, for $400,000, you could probably have sold it for $800,000 or even a million if you’d renovated it in 2017.
When considering timing you should buy low if you can and sell high. Don’t try and be the last person standing waiting for the best profit. Be the person that sells out and makes a good gain and then re-invest that gain into something that’s going to give you another gain because as Warren Buffett says – at best, those gains compound over the course of a lifetime and you end up in a much better position.
To really understand the market you need to live in the data. You need to learn how to understand it. You can’t pretend that you’re going to be a successful investor and not have a very, data process-driven approach to investing. Some people don’t like data but I’m not talking about spending your entire life living in the numbers and becoming an analyst.
There’s probably 30 high level key performance indicators that you need to get your head around to analyse a suburb effectively. You can pull this from about five different free sources online. There’s probably five newsletters you need to subscribe to each month and a few pages that you need to read on a monthly basis to really keep a finger on the market, so that you can track the data and really understand what’s going on.
The type of data I’m talking about is the predicted price growth from RP Data and Residex, the Herron Todd White Month In Review Report and the BIS Shrapnel reports. The idea is to really begin to wrap your head around the key points that matter and understanding trends and not just the opinion of the The Australian Financial Review or the Daily Telegraph. Most of the time, those writing the articles aren’t property investors or any other kind of investor.
10. Understanding the Sales History
Once you’ve actually got it down to, “I’m buying in Australia. I’m buying in Brisbane. I’m buying in these two suburbs. I’m comfortable with the high-level indicators.” Now, it’s time to get into the sales history. That’s where the gold lives.
This is where you can find opportunities in the market. This is where you can analyse one street versus another, find premium pockets, find un-renovated products selling for $500K, renovated products selling for $800K and knowing that you could spend $100K right now and create that product.
Understanding the sales history will help you find the yields and find market value so you can buy below it. Sales history data is very important. There’s a number of great sources for sales history data. A free source is realestate.com’s sold section. I personally pay for it from RP data and Real Estate Investar. There’s other websites like property PriceFinder and Property Index to give you that information as well.
11.Knowing Where To Get Your Data
I want to share some of the places that I follow on a weekly or monthly basis. Finding information is not enough. As Bruce Lee said; “Knowing is not enough. We must apply. Willing is not enough, we must do.”
Obviously, people that gravitate to our business are more aligned with, “My head’s confused. I’m scared of doing something” and that’s completely okay but you’ve got to get on with your life. Otherwise, you’re not going to get financially independent and you’re going to work for an extra 30 years longer than you have to.
I read Herron Todd’s White Month in Review report every month. I read the commercial and residential sections for Sydney, Melbourne, Sunshine Coast, Gold Coast and Brisbane religiously every single month.
I also subscribe to RP Data’s monthly property market report, which is absolutely gold. They provide a summary of every capital city in Australia and then, go through each capital city one by one. Amazing use of your time, really… It’s an amazing way to keep a finger on the pulse. I buy the BIS Shrapnel reports. They provide the 2017 to 2020 predictions report, for example.
The reality is those reports can be extremely helpful. I really like Residex, which was just bought by RP Data’s property market predictions reports and suburbs reports. There’s some good information on Real Estate Investar. There’s some good data to be collected from those guys as well. You’ve got Your Property Investment magazines and then, you’ve got The Economist. I like to follow Phil Anderson’s weekly newsletter.
John Lindeman is another great source, I’ve just finished his book, Mastering the Australian Property Market. Phil Anderson also has a great book called The Secret Life of Real Estate and Banking, which I mentioned before, that is definitely worth reading. Both of those guys are gold. Phil, in particular, predicted the last financial crisis two years before it happened and predicted the upside two years before it occurred as well.
Your job is just to take the different ideas from the different people in the industry and sift through the quality. I don’t think there is one source of data that’s going to give you a silver bullet. Most of the industry events that are put on are filled with crap. Don’t waste your money on too many of them. You can learn a lot of this stuff online, through reading great books and by focusing on the data.
12. Most People Will Never Be Financially Free
Most people unfortunately, will never be financially free. I hate that. The reason I’m in this business is because I want to help people. I genuinely want to help people achieve financial independence because it means you can spend more time with your family. It means you can spend more time helping people. It means you can live your life on your own terms and from your own passion and purpose.
It sucks having to go to a job that you hate. I did it for so long, grinding away for somebody else and not really knowing how I was going to get out of it. Without strategy, learning and growing or having the right people in my environment to help me get to that level I wouldn’t have been able to get there. I know I want to lead a full life and I want to leave a legacy. I’ve got two kids and at the time of recording this video, another little one on the way. I want to leave a better world for them.
You get to make different choices when you don’t have to stress about money every day. You make choices based on happiness and your true intention. I believe that people are selfless and when they get to that point, most people start to contribute back and do other things for others. That raises the consciousness of all people.
Without getting too down that hole, it breaks my heart that most people won’t be financially independent. In fact, 80% of my mates are probably going to be on the dole and not being able to do stuff with their lives. It’s so simple. It’s tiny little changes. Those daily things stack up over a lifetime. You don’t just get good at surfing or skating or playing soccer. You constantly need to show up and do them for a long enough period of time and then, you get better. It’s the same with investing and taking control of your financial freedom.
The number one reason why I don’t think most people will be financially free is this concept of they just don’t have the patience or the time to do it. This is a long-term game. This isn’t getting rich quick.
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