There are a multitude of important considerations in
making an appropriate investment decision
A qualified Property Investment Advisor will work to provide advice tailored specifically for you.
Your circumstances needs and preferences should be the basis on which any strategies are formulated, and recommendations presented.
Firstly, to know you and your needs, the Advisor will need to analyse many important considerations and criteria specific to you and your situation – importantly, the information needs to be both qualitative and quantitative.
A FACT FIND should be completed to determine for the investor:
Once the situation, needs and preferences are clear, the Advisor is then able to formulate a strategy and property recommendations that fit the ‘brief’ that has been identified in consultation with the investor.
Some of the critical considerations in selecting properties for review include:
Investment advice is about knowing the client, their needs and taking into account all the critical criteria and parameters to formulate an appropriate strategy and to present a well researched shortlist of property options.
There are no tricks to property investment!
Beware of those who make sweeping statements, offer guarantees, use pressure tactics, don’t acknowledge the risk, and avoid questions or concerns.
There are no rabbits to be pulled out of hats!
But it’s not rocket science either!
As with any purchase, the onus is on the buyer to be aware.
The best way to be aware is to be educated and know the right questions to ask.
Understand that there are no guarantees. A qualified, honest property professional will make evidence-based recommendations that meet your needs (not theirs)
Understand that ‘life is what happens while making other plans’ and so your circumstances may change over time.
It is therefore important not to over-commit and to invest sustainably for the long term and to ‘stress test’ your cash flow figures.
Go into it with your eyes open:
If this past month has taught us anything, it’s that good times can turn bad quickly.
Resilience planning for economic downturns
In December almost every property commentator was salivating at the thought of markets on the rise. After price retractions in Sydney and Melbourne, the turnaround was beginning to gain momentum. Markets such as Brisbane were seeing long years of dormant performance coming to an end with early February 2020 indicating a bumper year was in store for the Sunshine State’s capital.
Cue forward four weeks and who could have imagined the picture before us with the COVID-19 pandemic. Millions unemployed, tenants provided a moratorium on evictions and banks offering a freeze on repayments.
Of course, the full force of the economic tsunami is yet to be seen, because the property market’s strength is directly linked to confidence. If convincing solutions to the crisis can be found quickly, then the market will return in force. Prolong the pain and the recovery will likewise be extended.
But of course, the big lesson for everyone from political leaders to entry-level workers is simple – planning pays. Here what we can all learn as property investors from the Coronavirus (COVID-19) crisis about surviving the ups and downs.
Know your path
Advisors in our network follow a 14-step process to help clients build a portfolio… and the first eleven of those step having nothing to do with property selection. So when it comes to beginning an investment journey, don’t get caught up in researching real estate straight off the bat. Instead, carefully plan your path.
Recognise your starting point and defining your goals.
Write down your current asset base and income and work out what you want them to look like eventually. Think about how long you want to take to get there and layout your prospects for future income growth. Also, consider what life events may be before you. Are there kids in your future? Is a move interstate or overseas for professional advancement likely? You won’t know all the answers with 100 per cent certainty, but most people can sketch out a reasonable idea of how they’ll get from beginning to retirement and the types of considerations that need to be added to the mix. By setting out your path, you have a reasonable plan to follow to reach your endpoint.
Assess your risk tolerance (Stress Test)
This is important because long-term investors must be able to deal with market ups and downs. It’s essential to understand how you relate to risk so you can select the right composition of property types for your portfolio. For example, you may be an average wage earner with a family that needs the surety of shelter, education and other essentials. As such, you might seek assets that compromise a little on value growth potential but provide a stronger cash flow position. Conversely, you might be a young professional on good income who can invest a bit more and bear the cost of having to tip in a little extra each month to support your investment, knowing that it has great potential for value growth. Understanding your risk tolerance means you can travel with confidence and avoid panic if the market takes a hit.
Understand your finances
It is essential to have a handle on your finances. This includes home budgets, asset balance sheets and your borrowing and loan servicing capacities. This is where an experienced mortgage broker and property investment advisor are essential. Your investment advisor can help guide you through the key numbers to make sure everything is up to date. Great advisors also implement a regular audit of your figures to ensure they’re always current. Mortgage brokers will help you seek the best loan terms and give plenty of advice on what to do to improve your chances of gaining approval. This could be for a new purchase, or when refinancing under changed circumstances.
Buffers are essential
Perhaps more than anything else, those who are most successful at riding out the market rollercoaster are investors who have buffers in place. Make sure you are not overextended continuously in your loan capacity. Similarly, ensure you can comfortably meet loan repayments and other portfolio operating costs. Finally, work toward having a pool of available cash you can draw on in emergencies. This usually is best kept in an offset account to help reduce your interest bill as much as possible. This buffer – which should cover at least three months’ worth of outgoings – means you can hunker down and ride out most unexpected hits. This buys you the one thing that we all need in a crisis – time. The buffer lets you make plans without fear and can help deliver you to another side, a downturn intact.
While maintaining personal and physical safety during these events is your primary goal, the importance of planning for financial hits can’t be ignored.
Applying the principals outlined above will help you ride out the storm.
Author: Richard Crabb | MD ASPIRE Network | PIPA Board Member
“They aren’t making any more of it!”
Greenfield sites are undeveloped, typically on the outskirts of the metropolitan area and are being rezoned to serve the growing demand for housing.
‘Urban sprawl’ refers to the growth and enlargement of the boundaries of the metropolitan area.
With a rapidly growing population, the demand for housing is also increasing. So more and more rural and semi-rural areas are being rezoned and developed into housing estates. The type of product on offer is typically house and land packages, and the target market is principally families.
The term ‘urban sprawl’ is often applied as a criticism. While housing is a basic need and the provision of building blocks a priority, it can be counterproductive if the quantity or quality of existing infrastructure makes it impossible to live the life that the residents seek. There must be adequate roads, transport options, schools, childminding facilities, shopping centres, and recreational amenities, to make it desirable and functional.
Land development is a costly exercise and is a contributor to the inelastic nature of land supply that inhibits the market mechanism. There are significant structural impediments that mean the price of land rarely goes down!
The boundaries of the Sydney metropolitan area have changed enormously over the years and will unquestionably do so again in the next decade and beyond.
Source: City of Cities – A Plan for Sydney’s Future, Department of Planning, 2005.
What the map tells us is that what was considered the ‘outskirts’ twenty years ago or less, is now well within the boundaries.
Choosing to invest in a greenfield site will typically mean constructing a house and land package.
Depending on the investor’s age and time frames (the gift of time) an outer metro location that provides space at a lower cost may be a strategic approach.
House and land in greenfield developments have numerous benefits:
Land content – land is at a premium and tends to only appreciate over time. In some states and locations, the land content will be the most substantial portion of the cost of the package. This a function of population-driven demand factors but also because development is an expensive exercise courtesy of infrastructure requirements ( roads, water sewerage, electricity connections) and the co-contributions and levies applied by local government bodies.
Master-planned estates– most developments are part of a master-planned estate that include the provision of amenities such as schools, childcare, open space, shops and transport hubs. Covenants protect the value of each owner’s property by stipulating design features that maintain the overall aesthetic of the estate.
Stamp duty is levied only on the land content, providing a saving on initial purchase costs.
Appeal to a family demographic- families tend to be stable and reliable long term tenants. Once their children are in schools and sporting clubs and have friends in the area, parents are less likely to move, and this cuts down on vacancy rates and new lease/renewal fees.
Freehold or Torrens Title – the titleholder owns the property to the exclusion of all others. You can make changes to the property as you want (subject to local government authority approval) without consulting or seeking permission from a body corporate.
There are no body corporate fees or by-laws – as above, maintenance of the property is the responsibility of the owner. There are no rules to abide by apart from those imposed generally on the community by government zoning restrictions.
Greenfield development is a response to the increased demand for housing by building out whereas infill sites, build up.
An infill development uses obsolete, under-utilised or undeveloped parcels of land in established, urban areas. It may involve renovating, expanding or re-purposing an existing building, knocking down an old house or two and building medium density or high rise properties. Typically the build type will be townhouses or apartments.
It means building up instead of out!
The advantages of infill development include:
More efficient use of available land – As a medium or high-density measure, it provides more housing in areas of larger population and demand.
Efficient use of infrastructure – as the infrastructure is already in place (roads, schools, hospitals, etc.) more people use them, cutting down the per-person cost.
Gives residents proximity to the things that matter to them, including jobs and reduced travel time and expenses.
Less maintenance, the body corporate is responsible for external maintenance of the property and its amenities.
Preservation of open space, environmentally advantageous, reduces our environmental ‘footprint.’
Strong appeal to young professionals who value proximity over space and increasingly, to empty-nesters looking to downsize.
A note about gentrification:
Primarily, gentrification is the changing character of a neighbourhood through the influx of wealthier residents and businesses into once lower-income areas. Typically an inner-city phenomenon, it is characterised by changes in demographic metrics such as rising income, educational achievement, falling median ages, increasing population density and a preponderance of white-collar workers.
Research by the University of Queensland’s urban planning faculty states that contrary to long-held urban geography theories, the most intense urban renewal is happening in the three eastern seaboard states between 5-15kms of the CBD. In other words, the changes are rippling outwards.
Sydney, Melbourne and Brisbane all have suburbs in ‘middle ring’ areas that are rapidly gentrifying, and the map below shows the effect in Brisbane as an example:
Source: Gentrification no longer an ‘inner-city phenomenon’ in Aussie cities uq.edu.au/news 16 July 2020