How to identify headache investment property deals

Investing in property is like just about anything else in life and requires a strategy to be successful. This strategy should be based on what your end goals are and should be a roadmap on how to get there.

Strategies can evolve to incorporate lessons learned along the way and changing stages of life, but it’s rarely a good idea to stray from what gets you initial success.

Take choosing a property for example. b Invested’s own founder Nathan Birch made his money and built his portfolio by identifying the types of properties he wanted to purchase using metrics that were set in stone.

He wanted to be able to buy something for below market value, with upside for equity growth and good rental yield. That way his risk was minimised, his growth potential was amplified and he had a lucrative cashflow that allowed him to invest further without being encumbered by debt.

His end goal was to take as much money from the banks as he could, in order to pour it into as many assets as possible and build his maximum net worth position, serviced by the highest cash flow he could earn. This would help him live life on his own terms. And so far, with more than 220 properties in his portfolio, a giant net worth and having retired from salary type jobs many years ago, you’d have to say he’s well on the way.

Property as a vehicle

Nathan’s first realisation was that he had a destination in mind for his portfolio and his wealth and that each one of his investments was simply a vehicle that would eventually get him to where he needed to be.

He has since always been careful to distance himself emotionally from the properties he invests in. As long as the numbers stack up to make them a good deal, that’s all he needs to know. It doesn’t have to be a suburb he would personally like to live in, or a favourite property type. It just needs the right price, growth potential and rental demand. The main thought that preoccupies Nathan is figuring out what the bank needs from him next in order to lend him money for his next investment. Is it cashflow? Is it equity for the deposit? These are the things that count. Too many people get caught up in how a property looks physically and forget about the numbers.

Don’t second guess or make judgement

Everyone has probably heard stories about tenants trashing houses, or not paying their rent on time, but it’s not actually possible to predict where trouble will come from.

You might have a preconceived idea about a suburb or area that you might be considering investing in, but as Nathan has experienced, the tenants in the lowest socio economic parts of Sydney can be the most reliable with their rent and treating his properties well, while he’s actually seen properties foreclosed in the wealthy areas.

The bottom line is that it’s not up to you to make those calls. Anyone could turn out to be a bad tenant, but if you have a good property manager to screen applicants and the right landlord insurance in place, you should be protected from disaster.

So how do you identify property headaches?

Research is the key in making an informed call on potential trouble spots.

You will always get unwanted advice from friends or family, but in 99.9% of cases, they are not investment experts. People like Nathan have done many years of investment diligence, including lessons learned along the way and mistakes that clients can have the benefit of learning from without being the one that makes them.

In every region, potential problems can be identified by a market’s vacancy rates, average income and diversity of the economy.

For example, if you’d chased big returns in a mining town lately you might have been burned if a mine closed down and there wasn’t enough other employment to sustain local values.

Part of your research should be talking to local agents to get a realistic feel for the market and engaging a local property manager for further advice. If you wish to get in touch with a property manager to look after your assets, speak to an Investor Relations team member today.

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