Thinking about investing?

So many people think about investing long before they invest. For some, the doing part can be precluded by an enormous emotional or mental barrier.

Mindset is a term often used by property advisory professionals when it comes to helping people take action, and this is for good reason.

Mindset can make or break a successful property investment effort.

There are a host of reasons why prospective investors fail to take action, and after nearly two decades of work in this industry, I feel like I’ve witnessed most of these reasons;

• Avoidance of debt,
• Concern about a ‘bad’ tenant who either damages the property or doesn’t pay their rent,
• Fear of buying a ‘lemon’, (or an under-performing property),
• Worry about a market crash,
• Inability to get a partner on the same page,
• Analysis-paralysis,
• Kid-in-a-candy-store fatigue, (ie. too many options and it all gets quite overwhelming),
• Leaning on parents/friends/peers for opinions,
• Watching market movement and focusing on macro-economic indicators for the ‘perfect’ time to make a move,
• Limited ability/willingness to save a required deposit or be in a financial position to invest, and
• Listening to the white noise from those who are generally negative about property investing.

Addressing some of these is an enormous task for some, and the job of a Buyer’s Agent is sometimes heavily weighted towards working through some of these psychological barriers.

And then there are the other prospective investors who approach the task far too casually. We’ve met these folks too; the ones who are over-excitable and treat the buying exercise in the same manner that I’d adopt when buying shoes.

Rushing in without concern for finance assurance, cashflow analysis, debt retirement and diversification is a common threat for many investment journeys.

So where should a prospective investor start?

There are a lot of resources out there, from books to podcasts, magazines to portals. But approaching any of these resources without understanding your “why?” is only going to feel confusing.

Why? is a very important question. Investors approach property for many different reasons, including;

• Generating wealth through capital growth and unlocking this at a later stage,
• Building a passive income through rents,
• Creating a nest egg for their children,
• Leaving a legacy for future generations,
• Engineering themselves a full time job through renovating/building/developing,
• Upgrading family homes one by one through buy-renovate-sell,
• Because everyone else is doing it,
• Having something braggy to talk about at the BBQ, and my least favourite reason …
• To save tax

Understanding the why is vital, because time lines, capital gains tax calculations, holding costs and divestment decisions all hinge on the why.

Getting started is harder than most people imagine. It involves knowing what to buy, where to buy, when to buy and how to do it. Some people manage it really well on their own, and others turn to professionals.

Before circling in on locations and dwelling types, a discussion with a qualified professional about the plan is a necessary step. Aside from a Property Investment Adviser, a good strategic mortgage broker is also a great place to start, but no the only place. Some people turn to their financial planners or their accountants at the start.

The important point is to ensure that this professional understands property as an asset class.

Prospective investors need to be clear about their ability to sustain the holding costs each month, and should give careful consideration to the magnitude that they can manage. From $500 per month to $2000 per month in cashflow shortfall, property holding costs vary and it is critical that an investor understands what they are taking on.

One of the blockers that prospective investors face once the journey begins relates to the feasibility of their search. So many get started without an accurate idea of property values. Unfortunately underquoting and bait pricing leads many investors astray. For example, an auction campaign with a price guide of $500,000-$550,000 may excite an investor who has a budget at this level, yet the property sells for $600,000.

Understanding values prior to getting started is essential.

This is not a particularly difficult task when approached properly. Setting up a search on the SOLD tab of a search engine will give an accurate snapshot of recent sale prices in the area that is targeted. The process may take a little while, but a few hours invested on the internet will save many hours of wasted effort in the field.

Barriers to investing are plentiful. Approaching them in a pragmatic way can make all the difference.