By Grant Foley, Buyers Agent, Grant Foley Property
Do you know how many people in Australian own investment properties? It’s around two million people, but the vast majority, at about 90 per cent, only own one or two investment dwellings. The reasons why are many and varied, but it’s also because you don’t need to own a large portfolio to make a big difference to your financial future, especially when you can access our superannuation funds in retirement. The term “mum and dad” investors is ubiquitous in Australia because it really is a good definition of the predominant type of people who buy an investment property or two. They generally after aged over 40 because by that time children have often grown to the point that they are either not living at home or they’re not such a drain on the household finances! Plus, with many people buying their first homes in their 20s or 30s, they probably have a market cycle under their belts that has created some equity for them to recycle into an investment property. Investing in property doesn’t have to be difficult if you have access to the right expert advice and assistance – and you can recognise yourself in the six attributes listed below.
1. Access to capital Of course, people need to have access to funds for the deposit and purchase costs of an investment property, but this can generally come from equity in a home or savings with the balance being provided by a mortgage. Depending on lending conditions, borrowers can access about 90 per cent of a property’s purchase price via a mortgage with the weekly rent covering much of the repayments. Over time, as rents increase, then most strategically located investment properties will be cash flow neutral or positive while also growing in value at the same time.
2. Stable income and surplus household cash flow
If you have been working for the same company, or have been self-employed, for a few years this is generally enough to prove you have a stable income to lenders. Investors don’t need huge incomes to qualify for investment loans as the rent from the property is taken into the repayment calculations, plus interest rates are at record lows and are likely to stay that way for some time. It’s always a good idea to keep track, and preferably keep a lid, on household spending as well so you can show you have surplus cash flow to fund property-related expenses throughout the ownership period.
3. Appropriate risk profile
Even though more Australians can afford to invest than those who do, it does require having the right risk profile. What I mean by that is that some people are just not comfortable taking on extra debt, even though it’s the kind that has the potential to increase your personal wealth over time. Also, investors must be able to keep looking to the horizon during moments of market and interest rate fluctuations as well as periods of unexpected expenses.
4. Personal values that support property investment At some point over the past few decades, investors have developed a bad rep in the media – even though most only own one or two properties and are not high-income earners either. On top of that, investors also provide shelter for a significant percentage of the population, which is something the government stopped doing in any substantial way many years ago. So, people also need to have the right mindset around their motivations for investing in property, which is to improve your finance futures over the long-term.
5. Ability to take action
We probably all know of someone who is always researching the market but never does anything more than that! Analysis paralysis sets in or fear prevents them from taking action and they miss their chance. Some people also try to time the market, instead of recognising that time in the market is one of the key fundamentals in successful property investment.
Which leads me to my final point, which is that sound property investment is really, really boring! That’s because nothing happens for most of the time, but that’s how you want it to be. The real magic is in the compound growth that happens over a long period of time – which means holding property for 10 years is good but owning for 20 years is always much better. Unfortunately, a lack of patience is why most people want to get rich quick, when property investment is all about creating wealth in a sustainable way over the medium- to long-term.
In the property investment game, it is the steady tortoise who will beat the real estate hare – every single time.
Grant Foley is a Property Investor, Qualified Property Investment Advisor® & Licenced Buyers Agent. Enquiries: firstname.lastname@example.org
© Grant Foley Property 2021
The content of this article is of a general nature. Investors should seek their own independent legal & financial advice