How to set a meaningful property strategy
Written by Ben Nash, financial advisor and founder of Pivot Wealth.
Raiz Home Ownership have partnered up with Pivot Wealth and General Assembly to deliver a series of free online property focused money education events to make buying a home or investment property more straightforward. Events in the series can be found here.
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The growth in the Aussie property market has been huge in recent years, with the average house price up over 400% since the 1990’s. The strategy of buying property is something that has proven successful across several decades, but what strategy is best in 2021?
There are so many things you need to be across, which means it can be easy to miss things and make mistakes. Here are some of the key things you need to know to lay out a property strategy.
Emotions can affect outcomes
One of the big factors that can lead to making a property buying mistake is letting your emotions have too much influence. Like it or not, buying property is a process that’s prone to letting your emotions take control.
When someone starts to look at properties, whether a home or an investment, it is easy to start imagining life in the property, or if the purchase is an investment you may think about who will rent the property. It’s easy to let that emotion drive your decisions.
A resilient property strategy is one that finds the balance between the emotional side of your purchase and making a smart financial and investment decision that is going to fit with the life that you want to live today and into the future.
‘Locking up’ too much of your wealth in your home can be problematic for some
At some point, many people want to buy a home to live in. But the wrong strategy here can impact your ability to grow your other investments.
It is important to realise that your live-in home is not a liquid investment the same way as money in an investment account. What this means is that if you intend to live in your home for the rest of your life, the value of the home is only really money on paper, that will be passed on to your kids / family / charity when you are no longer around.
To get the balance right, take the time to run your numbers and look ahead to the future to ensure your property purchase leaves you with enough money left over to grow your other investments at the rate you want.
What to look for when you buy an investment property
If you are buying property as an investment, the approach will be slightly different. When you invest into property you should be looking for a property that may make you money, but also one that will fit with your lifestyle today and into the future.
Finding areas where the supply is limited and demand is strong can be one way investors look to achieve growth on an investment property. To find limited supply, investors can look for areas that do not have high rise buildings like major city CBDs or high-density housing areas. Areas expecting higher population growth and areas near amenities like universities, hospitals, and schools can meet these criteria.
Understand where your risk is coming from
You can only manage risks that you understand, so it is important to understand where your risk is coming from, and then how to best manage it. Here are some of the risks relating to property:
Asset selection risk: Proximity to amenities, areas close to the CBD, and the specifications of a property are all important factors that may determine future capital growth.
Cashflow risk: Being able to fund the purchase itself, the mortgage payments, and ongoing property expenses including strata. Strata fees in particular can get really expensive in properties with lifts, gyms and pools.
Interest rate risk: The cost of borrowing today is currently at record lows, but rates could increase at some point during the life of your loan. If you are buying property now, you need to make sure that you can afford it not only today, but in the future if interest rates increase.
Lifestyle risk: If you are expecting changes to your lifestyle over time, like getting married, starting a family, having kids etc., be aware these things will impact your financial capacity over time.
The Big picture
Buying property is one of the biggest money decisions you’ll make in your life, so put in the work to get it right. Get good help around you so you cover all your bases and can confidently buy property knowing you’re on the right track from the moment you make your purchase!
If you would like to find out more about Raiz Home Ownership, please contact the team at home@raizhomeownership.com.au, or register your interest.
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