The importance of having the right properties in your property portfolio.
Now more than ever it is important to remember the three fundamental keys to successful property investing:
- Buying below market value
- Buying properties that have a good upside for growth
- Buying properties that have a strong cashflow.
The market is changing.
Over the last ten years, it didn’t take much to make money on properties if you were buying in Sydney or Melbourne.
We have seen amazing growth across these capitals, but now, things have changed.
Liquidity is drying up.
Thanks to lending restrictions and less liquidity out there, it has become more difficult for many buyers to get loans.
There are greater risks involved in investing, which is why it is important to remember the three fundamentals mentioned above.
These work to minimise risk at the time of purchase in the following ways.
Buying below market value.
If you can secure a purchase price that is 15-30% below market value, you are essentially building a safety buffer into the acquisition.
The current market is an excellent one for buyers. Thanks to the fear and hype propagated by the media, it is possible to play on this when negotiating a deal with agents and vendors.
Not only are you minimising risk by creating a buffer, you are also building the potential for upside.
Remember, it is important to make money when you buy the property, not just when you sell it.
Buying with an upside for growth.
When it comes to buying a property at a $600,000 to $800,000 level, and speculating on subdividing or adding in extra dwellings, there are a lot of “maybes”, “one days” and “hopefullys” involved.
There are some metropolitan markets where you can still buy for $150,000 to $300,000. This enables even low income earners to better fit the serviceability criteria of the banks.
There is more upside for growth in these undervalued markets as well as a good cashflow to see you through your repayments.
Buying with a good cashflow.
You don’t want to be buying properties that bleed your pay check dry every month. If you aim for a neutral cashflow within your portfolio, you will be minimising the risk of financial hardship if you lose your job.
These sorts of properties will be easier to hold over the long term and will enable you to better expand your portfolio.
Questions to ask when buying.
Aside from the three fundamentals, there are some important questions you should ask yourself before purchasing a property.
- Why are you buying this?
- How will this property help you to be in a better position to quit your job?
Every property should serve a purpose in your property portfolio. Make sure you are making money on them at the time of purchase so that you can minimise risk and push for the greatest return possible.
Have you been able to negotiate a good purchase price in the current market? Please share your experiences in the comments section below.