For most members of the Sandwich Generation – those in their 40s, 50s and 60s with adult children on one side and elderly parents on the other, property ownership has always meant, first and foremost, owning their own home. It’s the Australian way.
Their children, the millennials, are also interested in property, but with a different focus. They see property in terms of its investment potential. It’s a trend called “rentvesting” renting where you want to live but still building a property portfolio in the background. There are a number of reasons for that, often including living and working interstate or overseas, or multiple career changes.
The point I want to make here is that the millennials are onto something: that is, the real potential benefits of property investment. Property investment can be a valuable component of a ‘financial freedom’ investment strategy, particularly when that strategy is focused on income over capital growth.
My 6 Golden Rules on buying Property
The most obvious way to get into the property market is to buy a property in your own name: an apartment, a holiday house, a suburban house or even a commercial property. Suffice to say there are some golden rules that you need to follow. Here are my 6 golden rules to property 101:
- Location, location, location. It’s an old saying but still very true. Get to know the demographics of any area you are interested in before you start. Is it a growing area? Is there a new hospital or Bunnings being built – anything to show signs of growth in the area? Something I like to check is whether there is a McDonalds close by. They spend millions on research for growth trends before setting up a new restaurant. You can piggyback off their work!
- Follow the money. It is not about how much a property is worth now, but (a) how much its value is likely to grow (capital gain) in coming years and (b) how much income (via rent) it could provide. That’s why another real estate truism is ‘Don’t buy the best house in the street’. The worst house in a good area has the most potential to grow.
- Take the emotion out of it. When making any sound property investment decision, think with a clear and focused mind rather than making it an emotional choice, taking a punt or speculating. It’s too big a purchase to gamble on, so have a plan, and if possible someone with you who can be impartial. (This point is just as valid for other investments as it is for property.)
- Property is like shares: the market goes in cycles. Do the research and see whether the area you are interested in is at the top of the market or bottom, or somewhere between. Your view on this will likely be different for an investment property as opposed to buying a home to live in. In the latter case, you may have a longer-term perspective and can wait until the market starts to move up, as good property usually does over time.
- Cover your bases first. Before bidding on or getting serious about a specific property, make sure you have done your homework. Work out what level of deposit you have or need, what your buying limit is, what your mortgage and the associated repayments would be. Other considerations include whether you are financing the loan on one salary or two (and, if two, what would happen if you dropped down to just one salary), and whether you have insurance and a proper safety net in place.
- Get advice. Whether it is from your bank, a mortgage broker, financial adviser, property advocates, friends or even Google, learn as much as you can about property before you dive in. While good properties tend to increase in value over time, there are plenty of horror stories of people buying the wrong property and watching its value fall away. You may have to pay for getting good advice but compared to the cost of the property its usually a small price to pay for that expertise.
While it can be exciting and every Australian gets brought up on owning bricks and mortar, it is very easy to get burnt as will probably be the most expensive on off purchase you will ever make. So yes look forward to it and is one of the best feelings to get hold off those keys and walk into the front door of your property but just make sure, you do your homework first!
Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich