There’s a question I get asked a lot – and I do mean, a lot – about property investing, and I’d like to put it to bed once and for all.
I hear it dressed up in different guises, but it is essentially about where to buy your next investment property.
For instance when Rachel sent this question through to our Burning Questions box on our website, she asked:
“Can I afford to invest in a $400,000 quality investment property – and which city in Australia would be best to do this?
It’s actually really scary that this question is being asked. I’m not having a go at Rachel as there are literally thousands of people in the same boat, but I have to say I am a little worried for her.
This type of question clearly indicates to me that there is no investment strategy in place, no investment has been made in a property education, and there is not a lot of understanding around what it takes to successfully grow your wealth through property investing in Australia.
When you’re in this situation, you can easily be taken advantage of, and that’s why this worries me so much.
Overall, most people have a broad understanding of the fact that you can use property to build wealth for the future, but it’s the ‘how’ part of the equation that is missing.
That’s why I get this question all the time. The thing is, there are so many variables at play that it would be remiss of me to even attempt to provide an answer. For example my first thought when considering Rachel’s question is: Why are you looking to spend $400,000 on an investment property? Why not $300,000 or $500,000?
Have you chosen this amount because it’s how much the bank is willing to lend you, or does it just seem like a decent amount of money that you feel comfortable borrowing?
Either way, it seems to be an arbitrary figure rather than an amount that aligns with your strategy.
Your strategy is what is going to guide you on all of the important questions and ultimately help you achieve a successful outcome as an investor. These include questions like:
- How much do you want to spend on your investment property?
- How much can you borrow to fund your investment?
- How much deposit do you have access to?
- How much rent do you need to achieve to support your investment?
- What capital growth targets are you aiming for?
- What is your annual income and how much discretionary income do you have?
- Have you got kids and are you married or single?
- What is your profession like – are there prospects for a payrise in the future, or is your industry unstable?
At Real Wealth Australia, we go through the process of looking at the data in answering these questions (and I have to say this is just the tip of the iceberg; there are DOZENS more!) and from there, we develop a personalised strategy to help you make informed decisions as a property investor.
At the end of this process, you will have a very clear idea of what to buy as your first or next investment, in order to tick your future growth boxes and help you achieve your long-term goals:
- It needs to cost me no more than X amount
- It needs to deliver an X yield
- It needs to be in X location to attract tenants all year-round
That is a strategy.
And that’s the type of strategic approach to investing that my students use to create successful results in the property world.
To Rachel and all the other investors reading this right now who are not sure of what to do next or where to buy or how to get started, I implore you to start with the best investment you can make – an investment in your own education! Once you are educated on the nuts and bolts of successful investing, you’ll be able to answer these questions for yourself and take bold, confident steps forward towards your own financial future.