It never ceases to amaze us how people spend more time researching the purchase of a new vehicle than they do a property. For an asset that is 20 to 30 times more valuable and will be the most expensive acquisition made in their lives, it makes no sense whatsoever to leave so much of the investment process to chance!

Buying a property should be treated as a process – combining various, carefully planned elements, all combining to form a holistic approach. Leaving out critical elements such as planning, research or due diligence before putting pen to contract can lead to disastrous long-lasting effects.

Conversely, spending time on research and planning can save you many thousands of dollars – especially in the current market.  Look at last week’s auction result at 13 Richards Ave, Eastwood (in Sydney’s northwest). That property sold for a staggering $1million dollars above the reserve after 42 registered bidders fought it out on the auction floor!  Poor research and emotionally-based bidding will land people in all sorts of trouble in this heated market.

The IPS team recommends that you should be out inspecting many properties in the selected area in order to better understand the local market dynamics. No two suburbs perform the same and it’s important to have inspected at least 50-100 properties in the local market in order to properly understand what it going on. Equally so with the current auction-oriented environment – it is important to have plenty of experience with auctions and we would recommend attending at least 30-50 auctions in order to get a good handle on the various tactics used by agents, the many different ways in which an auction can unfold and how people react to the auctioneers and, equally importantly, how other people act under the pressures of an auction situation.

Another important element to consider as part of your overall plan is after you’ve purchased the property. What happens then? Having a poorly managed investment can undo much of the hard pre-purchase work you put in. Having your property poorly managed will hamper the performance of, not only this asset, but will drag down the overall performance of your investment portfolio.

So, in order for us to help our readers better understand the importance of a carefully planned and well managed investment purchase, we review each step of our end-to-end investment process.

Over the next 4 months we will go through in this newsletter each of our 8 steps in greater detail. Make sure to watch out for the next 4 newsletters, as this should form your guide on how best to outperform the market.

Step 1 – Initial Property Investment Strategy

Before commencing, you should review your current situation and determine your overall investment objectives in order to develop your investment strategy model and a clear action plan to assist in achieving your goals.

Understanding your objectives and then ensuring these match your specific risk profile, budget, goals and time frame is the first, all-important step in establishing the framework for a successful property investment portfolio.

Step 2 – Structure Strategy

Successfully identifying the best structure and entity for a particular property purchase is integral to the investment process. You should take the time to discuss with your structure specialist / financial adviser to work with you to understand your structuring goals and ensure you are getting maximum benefit as a result of appropriate buying and management structure for your property investments.

Step 3 – Property Finance Strategy

It is crucial to think ahead when considering your finance options. Simply chasing the lowest rate is a common pitfall for many buyers and often results in less-than-optimum results. You should take the time to liaise with a property investment finance specialist to help evaluate your property finance options, determine the best strategy and help secure the finance to match your goals and strategy.

Step 4 – Buying Strategy

In the current heated market, it has never been more important to properly research the market before buying. Firstly, you should develop a property acquisition brief which clearly outlines your specific requirements. Targeted assets should be those that are more likely to outperform the market and withstand market fluctuations. The brief must match your specific requirements, so, such elements as capital growth, rental yield, vacancy rates, relative risk, amongst others, should be considered before embarking on your property search.

Buyers Agents have countless hours in researching, sourcing, negotiating and securing investment property, so using a buyers’ agent makes good sense rather than trying to understand the market and do this yourself. Buyers agents are specialists in the building successful property portfolios for their clients and are professional market researchers and negotiators.  It makes good sense to have a buyers agent on your side when it comes to finding the right property, at the right price and help you avoid the hassle involved along the way.

Step 5 – Add Value Strategy (Property Renovation and Development)

Successful investment strategies always begin with the end in mind. When it comes to adding value, too many people buy the property first and then start to think about how they might add value only to experience time and costs blow outs along the way – all of which hamper the performance of the property and undo the hard work that went into securing it.  It’s important to identify opportunities to add value before you buy.  Detailed due diligence will enable you to understand the possible uplift in capital value and enhanced cash flow as a result of smart renovation.

Do your research before you buy!

Step 6 – Property Management Strategy

Successful property management is about more than just collecting rent. Too many people have had their hard-earned gains washed away by poor and ineffective property management.

You should ensure that your property manager monitors the performance of your asset frequently. Ideally you want a specialist firm that focuses on property management in the areas you have investments and have all properties managed by the one organisation. IPS is one of only a few firms that can deliver this type of specialised service. It is ideal to have a property managed by a firm that is an advisory firm as opposed to selling real estate, as property management shouldn’t be done in isolation. Property management should be performed as part of an overall portfolio management and investment advisory solution in order for you to get the most out of your portfolio and outperform the market.

Step 7 – Property Portfolio Review

Keeping up-to-date with the performance of your portfolio is extremely important. You should review the performance of each of your properties and make adjustments frequently. Such things as rental reviews, cosmetic renovations, floor plan reconfigurations, depreciation schedules, restructuring, disposal and refinancing opportunities – especially in the current low interest rate climate – should be carried out frequently.

The more properties you own, the more frequently you should consider a portfolio review. Too many people simply forget about their properties and miss out on opportunities to tweak the performance of their assets.

Step 8 – Property Disposal Strategy (Selling Property Investments)

Should the decision be made to sell a property, then you will need to think about how you will get the best possible result. Picking the wrong agent or using the wrong strategy can potentially result in the loss of tens of thousands of dollars. Painful when you’ve worked so hard up to this point.

Seeking independent advice before appointing an agent is crucial as there are so many factors to take into consideration – the agency, the actual agent, the marketing and the timing of the campaign.  Should you sell via auction, private treaty, expressions of interest or closed tender?

It is important that you understand your options first and then consider next steps before selling.  If unsure you should seek independent and objective advice from your advisers including your financial adviser, accountant, buyers agent and property adviser.

Following the above steps will help ensure that you get the best possible performance from your property portfolio. This is the first article in a 9-part series which discusses each of the above steps in more detail. Our next article will focus on Step 1 – How to Develop the Right Initial Strategy.

Written by RAMON MITCHELL, General Manager – Property Advisory Services at IPS.  Ramon is a fully licensed real estate agent and buyers agent with more than 15 years’ experience in all facets of residential real estate including property investment advice, buyers advocacy, sales, project marketing and development. IPS believes that investing in residential real estate is a process, as opposed to a single event. IPS has a full end-end approach to residential property investment and portfolio management, ensuring their clients’ property goals are achieved efficiently and effectively. For more information, call 02 9324 8841 or go to www.ipsg.com.au or email info@ipsg.com.au

 

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