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There are 10.7 million dwellings in Australia with a total value of over $9.4 trillion and at any time there are hundreds of thousands of properties for sale.<\/p>\n
The once in a generation property boom we experienced in the last year or so is encouraging many investors to consider buying their first or their next property.<\/p>\n
But don\u2019t just run out and buy any property.<\/p>\n
Not all properties make good investments! ![\"house](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2015\/11\/house-yes-no-cross-suitable-help-guide-wrong-right-property-house-building-good-bad-300x178.jpg\")
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In fact, in my mind less than 4% of the properties on the market currently are what I call \u201cinvestment grade.\u201d<\/p>\n
You see\u2026currently there are fewer properties on the market than there have been for a long time, and while there are still many properties on offer, there is now a real shortage of quality \u201cinvestment grade\u201d<\/em> properties.<\/p>\n Of course, any property can become an investment property<\/a>.<\/p>\n Just move the owner out, put in a tenant and it\u2019s an investment, but that doesn\u2019t make it \u201cinvestment grade\u201d.<\/em><\/p>\n To help you understand what I consider an investment grade property, let\u2019s first look at the characteristics of a great investment, and then let\u2019s see what type of properties fit these criteria.<\/p>\n The things I look for in any investment (including property) are:<\/p>\n Well\u2026property investors make their money in four ways:<\/p>\n But not all returns are created equal. Capital growth is not taxed while rental returns are, and as your property increases in value, the rent increase also generating more cash flow.<\/p>\n Capital growth is a much more important driver of your wealth creation\u00a0 than cash flow.<\/p>\n Clearly you need cash flow to allow you to hold your portfolio for long enough so that the power of compounding of capital growth kicks into gear, meaning you must have a financial buffer to see you through the lean times.<\/p>\n This means you need to be careful about your cash flow and your ability to service your debts.<\/p>\n Too many investors don\u2019t recognise that property investment is a game of finance with some houses thrown in the middle and leave themselves open to financial woes by not having rainy day money that they can draw on when needed, which often results in them selling at a bad time.<\/p>\n Cash flow keeps you in the game, but it\u2019s really capital growth that gets you out of the rat race.<\/strong><\/p>\n Let\u2019s face it\u2026statistics show that most property investors fail.<\/a><\/p>\n They never achieve the financial freedom they aspire to and this is, in part, due to the fact that they follow the wrong strategy \u2013 more often than not it\u2019s because they chase cash flow.<\/p>\n Just look at these stats (from the ATO)\u2026<\/p>\n Property investment may be simple, butit\u2019s not easy, as clearly most property investors failed to build a sufficiently large property portfolio to provide them with a substantial retirement income.<\/p>\n However, growing a property portfolio will supplement your superannuation and other investment assets to help secure your financial future.<\/p>\n Of course, the number of investment properties you own is not nearly as important as the quality of your assets and amount of equity you have in them.<\/p>\n I\u2019ve often said I\u2019d prefer to own one Westfield shopping centre than 50 properties in regional Australia.<\/p>\n However, you can outperform these averages!<\/strong><\/p>\n Examining these tax office statistics made me wonder how our clients at Metropole Property Strategists, who have been given strategic advice to guide their investing, have performed compared to the average property investor.<\/p>\n Currently,\u00a0Metropole<\/a> manages close to $2 billion worth of property assets on behalf of our clients and as you can see from the following chart, on the whole, clients of Metropole have significantly outperformed the averages:<\/p>\n We\u2019ve only counted the properties we have bought for clients or that we manage for them.<\/p>\n This excludes properties clients purchased prior to coming to us, and naturally skews our figures to the conservative side.<\/p>\n It\u2019s easy to buy the first property, but each additional property added is progressively more difficult.<\/p>\n We\u2019d like to think our strategic approach to investing has contributed to our client\u2019s outperformance, so I\u2019ll explain that in more detail in a moment.<\/p>\n But first I\u2019d like to explain that\u2026<\/p>\n Although I accept that not everyone agrees with me.<\/p>\n Now don\u2019t misunderstand me, cash flow is the ultimate end goal.<\/strong><\/p>\n But you only turn to cash flow only once you\u2019ve built a sufficiently large asset base of \u201cinvestment grade\u201d properties, meaning your investment journey will comprise 5 stages:<\/p>\n The safest way through this journey, which will obviously take a number of property cycles, is to ensure you only buy properties that will outperform the market averages with regards to capital growth.<\/p>\n To facilitate this, I would only buy a property:<\/p>\n O.K. back to my original comment that less than only 4% of properties on the market are investment grade.<\/p>\n Of course there\u00a0is plenty of investment stock <\/em>out there, but don\u2019t confuse the two.<\/p>\n These properties are built specifically built for the investor market \u2013 think the many high rise new developments that are littering our cities \u2013 yet most of these are not \u201cinvestment grade.\u201d<\/p>\n They are what the property marketers and developers sell in bulk to na\u00efve investors \u2013 usually off the plan, but they are not \u201cinvestment grade\u201d because they have little owner occupier appeal, they lack scarcity, they are usually bought at a premium and there is no opportunity to add value.<\/p>\n Off the plan apartments make terrible investments!<\/strong><\/a><\/p>\n Analysis by\u00a0BIS Oxford Economics<\/a> a couple of years ago (when the markets were booming last time around) reported that of the apartments sold off the plan during the previous eight years:<\/p>\n In other words\u2026 more investors in off the plan high rise apartments have lost money than have made money.<\/strong><\/p>\n And of course there are all those investors sitting on the apartments which are continuing to fall in value, but they haven\u2019t crystallised their loss yet.<\/p>\n On the other hand, investment grade properties:<\/strong><\/p>\n The bottom line is buying the right \u2018investment grade\u2019 property is all about following a proven blueprint that successful investors follow.<\/p>\n This increases your chance of better financial returns and reduce your risks of getting caught out as our property markets move into the next, less buoyant stage of the property cycle.<\/p>\n It\u2019s not just the property \u2013 it\u2019s also about location.<\/strong><\/p>\n By now you would know that location will do about eighty percent of the heavy lifting of your property\u2019s capital growth.<\/p>\n It seems that in our new \u201cCovid Normal\u201d world, people love the thought that most of the things needed for a good life are within a 20-minute public transport trip, bike ride or walk from home.<\/p>\n Things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs.<\/p>\n But this is nothing new\u2026the rise of the 20-minute neighbourhood started long before Covid19<\/p>\n However now, the ability to work, live and play all within 20 minutes\u2019 reach is the new gold standard desirable lifestyle.<\/p>\n Some suburbs will always be more popular than others, some areas will have more scarcity than others and over time some land will increase in value more than others.<\/p>\n That\u2019s why it\u2019s important to buy your investment property in a suburb which is dominated by more homeowners, rather than a suburb where tenants predominate.<\/p>\n And you\u2019ll find suburbs where more\u00a0affluent<\/em>\u00a0owners live will outperform the cheaper outer suburbs where wages growth is likely to stagnate moving forward.<\/p>\n But it\u2019s the same all over the world.<\/p>\n Go to any major city \u2013 London, Paris, Vienna, Los Angeles \u2013 and you\u2019ll find that the wealthy people tend to live within 10 \u2013 15 minutes drive from the CBD or near the water.<\/p>\n Why is this so? The cynics would say because they can afford to.<\/p>\n And in part that\u2019s true.<\/p>\n In general the more established suburbs with better infrastructure, shopping and amenities tend to be close to the CBD and the water and that\u2019s where the wealthy want to and can afford to live, and they\u2019re prepared to pay a premium to live there.<\/p>\n The rich do not like to commute.<\/p>\n Overall, by focussing your research on what those often overlooked owner occupiers are doing, you may just find an investment that outperforms the market and delivers strong value and growth over the long term.<\/p>\n So it\u2019s interesting that while owner-occupiers are one of the most significant influences on property, they are commonly overlooked.<\/p>\n Think about it\u2026with almost 70% of all homes in Australia owned by owner occupiers, this underpins the steady long term growth of property values.<\/p>\n On the other hand, investors, who comprise just 30% of the market, create our property booms (often driven by Fear OF Missing Out or greed) and our property downturns (when they exit the market by sitting on the sidelines or selling up) creating volatility.<\/p>\n Here\u2019s a relatively current snapshot of the national property market according to the Australian Bureau of Statistics (ABS) and CoreLogic:<\/p>\n Now, from these figures it\u2019s fairly clear that owner occupiers comprise the largest portion of the market \u2013 in fact, they outnumber investors two to one.<\/p>\n Which is why I always give the following advice to investors who are searching for a strong property performer:\u00a0buy the type of property that will appeal to owner occupiers<\/em>.<\/p>\n As I\u2019ve already explained\u2026in my mind an investment grade property must have owner occupier appeal.<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n Most investors start with the property and that\u2019s actually the wrong way round.<\/p>\n It\u2019s important to start with the endgame in mind and understanding what you need what you want to achieve. And then you have to build a plan, a strategy to get there.<\/p>\n The problem is, most people become property investors without putting much thought into it.<\/p>\n Some upgrade their home and turn their old house into an investment.<\/p>\n However, that doesn\u2019t mean it will make a good investment because they probably bought it for emotional, rather than objective, reasons.<\/p>\n Others buy an off the plan property based on promises made by marketers, while others buy a property in the comfort zone \u2013 close to where they live.<\/p>\n Now don\u2019t make the mistake many investors make and buy in your own back yard because you\u2019re familiar with the location.<\/p>\n That\u2019s really not a good reason to buy there.<\/p>\n In fact, a recent university study showed those investors who bought a property close to where they lived tended to buy underperforming properties and didn\u2019t even get a price advantage on purchase.<\/p>\n You\u2019ve heard it before \u2013 failing to plan is really planning to fail.<\/p>\n On the other hand, strategic investors devise a strategy \u2013 they bring their future into the present and devise a plan to achieve the results they want.<\/p>\n So you \u201cend game\u201d is might look something like this\u2026<\/p>\n By having a mixture of growth and income assets and a conservative level of debt, you\u2019ll be able to live of the \u201ccash machine\u201d of your investments.<\/p>\n How big an asset base you\u2019re going to need, how long it will take to accumulate, how much cash it will spin out will depend on a myriad of factors and that\u2019s why we always recommend the starting point \u2013 even before you starting looking at property is building a customised Strategic Property Plan.<\/a><\/p>\n And that\u2019s what we always recommend for our clients at Metropole<\/a> \u2013 whether they have beginning investors or in the middle of their wealth creation journey.<\/p>\n That\u2019s because attaining wealth doesn\u2019t just happen, it really is the result of a well-executed plan.<\/p>\n Planning is bringing the future into the present so you can do something about it now!<\/p>\nWhat makes a good investment?\u00a0
![\"Property-Investment-Checklist-300x199\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2016\/08\/Property-Investment-Checklist-300x199-300x199.jpg\")
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So how do you make money from an investment?<\/span><\/h2>\n
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![\"Money](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2020\/04\/money-tree-300x169.jpg\")
<\/p>\nYou can\u2019t afford to do what most investors do<\/strong><\/span><\/h2>\n
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![\"Property](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2019\/07\/property-retire-300x200.jpg\"\/)
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![\"1\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2019\/05\/1.png\"\/)
<\/p>\nCapital growth is the most important factor of all<\/span><\/h2>\n
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6 Stranded Strategic Approach to my investing\u00a0\u00a0<\/strong><\/span><\/h2>\n
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Not that I plan to sell the property, but because owner occupiers will buy similar properties pushing up local real est![\"house](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2016\/07\/40438178_l-300x300.jpg\")
ate values.
This will be particularly important in the future as the percentage of investors in the market is likely to diminish<\/li>\nNot all properties are \u201cinvestment grade\u201d<\/span><\/h2>\n
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![\"Buying](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2019\/01\/buying-off-the-plan2-300x184.jpg\")
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![\"location](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2015\/08\/location-map-house-suburb-area-find-300x225.jpg\")
shops, restaurants and parks. And they\u2019re close to public transport \u2013 a factor that will become more important in the future as our population grows, our roads become more congested and people will want to reduce commuting time.<\/li>\n![\"Top](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2020\/02\/top-down-approach-1017x692.jpg\")
<\/p>\nNot all locations are created equal<\/span><\/h2>\n
![\"Neighbourhood2\"](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2018\/12\/neighbourhood2-300x157.jpg\"\/)
<\/p>\nTwo-thirds of the market are homeowners<\/span><\/h2>\n
![\"Want](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2020\/05\/AdRotate.jpg\")
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![\"Australian](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2021\/02\/Screen-Shot-2022-01-14-at-11.49.32-pm-1920x680.png\")
<\/a><\/p>\nWhat\u2019s your investment strategy?<\/span><\/h2>\n
![\"Investment](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2016\/06\/bigstock-Investment-Strategy-20475164-300x253.jpg\")
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![\"Planing](\"https:\/\/cdn.propertyupdate.com.au\/wp-content\/uploads\/2019\/04\/planing-strategy-future-300x190.jpg\"\/)
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