How to be successful when buying property

There are two extremes on the risk spectrum when it comes to property buyers and it’s the ones who can balance both extremes that go on to become successful property investors.

At one end are those who like tried-and-true approaches, preferring to stay rigidly within a set course of familiarity. They reason, ‘Why go beyond my comfort zone? There’s only pain in the unknown!’

At the other end are those who are happy to take some chances. These investors are constantly on the hunt with a, ‘damn the consequences’ outlook. They’re keen to spot opportunities first, and pounce with little regard for potential return on investment risk.

Every investor will fit somewhere on the scale, but the most successful are those who can find a balance between both types – the ability to pivot and tack in a seemingly fearless fashion while still maintaining a measured approach to risk.

This is makings of an agile investor.

Here are my tips on how to become agile when investing.

1. Start right

Agile investing is for buyers open to participating across the spectrum of investing categories broadly on offer in Australia’s property markets.

Agile investors can step into different realms with confidence because they recognise that building a successful portfolio should include diversification, and opportunities don’t just exist in one location or property sector.

Key to success as an agile investor is first establishing a firm financial foundation.

Successful investors define long-term goals, and ensure their path will allow plenty of buffers so that their first and second investments set them up for the future.

While some high-risk types might want to jump in with scant regard for future financial downsides, this is foolish investing, not agile investing.

You just can’t safely take advantage of future opportunities without having first established a solid baseline portfolio.

2. Check the water before you jump in

While I encourage everyone to learn and grow as they move through the ranks of real estate investment, attempting to tackle a new location or property type ‘cold’ will lead to heartache.

You should be prepared to try something new only when you’ve completed the knowledge groundwork needed to make smart decisions.

Ask questions, read literature, analyse the data. Do a few ‘dry runs’ at potential investments to see if they’ll fit the bill.

Without knowing and understanding the asset class and location you’re pivoting too, you are just speculating, not investing.

3. Advisors are everything

Part of becoming an agile investor means having a team of talented professionals in their corner.

If you’re thinking about going beyond buying a property to live in, talk to an accountant about tax implications, local real estate agents for recent sales data and loansHub about your financing needs.

Check how your home loan compares

4. Be liquid

I know – asking agile investors to ‘be liquid’ sounds entirely obvious

Being liquid means you have buffers of equity and cash flow in place. It’s a cornerstone principle of every strategy, but it’s importance to agile investors cannot be overstated.

Being liquid allows you to take advantage of any new opportunities without risking everything. It means you can transition smoothly into new markets because you have the security of buffers.

Remember though – if you are not liquid and are skating along your financial edge where a wrong choice could tip your plans into fiscal oblivion, just sit still and don’t move.

It’s better to let a couple of opportunities pass you by while building your reserves than to make one wrong choice capable of bringing the whole scheme crashing down.

5. Watch the fundamentals

Knowing when to move away from one market and into another involves tracking the fundamentals across both.

Watching those well-established economic metrics of supply and demand is an indicator of how markets perform.

Tracking the number of construction approvals, keeping an eye on yields, looking out for auction clearance rates and staying abreast of finance movements.

Watching these fundamental metrics on markets of interest will tell you when it’s time to switch your attention from one to the other.

6. Morph across elements

When I talk about diversifying away from familiar investment, I don’t just mean by location.

Agile investors are borderless when it comes to opportunities. They readily accept it when one of their investment stomping grounds has run its race. That’s when it’s time to start looking further afield.

Of course, distance is not the only way to define the distinctive real estate options. We are also talking about varying price sectors – each of which can perform differently even within the same geographic area.

For example, markets change in response to demographic shifts. As a location’s lower price sector reaches a peak in demand, so a new demographic may cause a wave of demand to shift into upper price bracket.

There are property-type differences too. While investor-style units are currently ‘out of favour’, some buyers will benefit from purchasing an owner-occupier apartment stock within the same location.

Commercial investment is another way to flex your portfolio. Other choices might be to unearth large allotments with simple small development potential, or perhaps you see opportunities in renovation deals.

Be agile across all the variations offered by property.

7. Graduate

As mentioned, you need to be right across your subject before changing your tack, but you should also avoid leap-frogging too quickly into the unknown, regardless of how much knowledge you require.

It’s important to gain knowledge gradually – becoming an increasingly sophisticated investor in a measured and organic way rather than rushing ahead.

For example, I would not recommend tackling a small development project as your first deal – regardless of how good it looks. Instead, start with a home or unit and perhaps move into a small renovation or extension after that.

When you do make it to the small development stage, try an easy project such as a land split before you tackle a construction deal.

Being agile doesn’t mean being foolish, you must stay between the flags of good sense, or risk drowning.

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This article via Smart Property Investment does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.