You will hear some successful investors talking about a few 'flukes' [lucky surprises], but when you dig a little further there is always an element of knowledge that tipped the balance of choice. Of course, not all decisions turn out exactly as planned because property purchasing occurs in a market environment, and no one can predict market changes with 100% accuracy.
Even though we are dealing with a market, there are winners and losers in both boom and bust markets. A great example is Sydney, where the market has leapt ahead over the past four years. Many people who purchased in Sydney before 2012 have done very well, some even doubling their money. But not everyone was a winner.
There's many ways to blow a booming market. In Sydney, some people sold too early, thinking they could sell high and buy back in at a lower rate. Some became too greedy putting too high a price on their properties, wasting thousands of dollars in advertising while their properties languished as buyers avoided the purchase. Then of course you have the range of poor renovations that ruin perfectly lovely properties, and the list continues from there.
Frustratingly, many current winners – those people who have retained their Sydney properties over the past four years – will squander the equity they have built without knowing they could have used their capital growth to continue to build their wealth and some massive 'property luck'.
Unfortunately, there's a limitless number of ways to be 'unlucky' in property. For the purposes of brevity, the key ways are grouped into three main areas below.
Use silly ways to access your equity. This includes poor loan facilities than tie up too much security over your property, loans that cost too much or that don't have a structure which will allow you to pay down the loan and re-use the funds when you need them. This way to be unlucky also includes buying all your property in the one name, and not using appropriate tax structures that will protect your assets and allow you to buy more property or other investments.
Buy a property that will not pay off. This issue bugs me. I don't understand why you would pay $400,000 for a one bedroom unit in Gosford, when you could buy a house on a 600 sqm+ block for the same money one or two suburbs away. And don't get me started on the location itself. The reason I chose this example is because of a conversation I had earlier in the week with a person who was just about to buy the unit.
I understand the trap is easily set by beautiful images and the fact that the units don't even exist, so you can't actually see that the images show the property in a very favourable light. Add this to the excellent sales skills of the agents, marketers and 'educators' who work very hard to show the wonderful features of the property and it's easy to see how people are drawn into the trap.
Sell a property just because you're sick of it, or because you think you can't access the equity any other way. For example . . you're planning to sell the very first property you purchased which is an old, tired unit in a block of six on a busy road. So you speak to your local agent and, because he is good at his job (and there is no harm in that), he talks to you about what a great time it is to sell.
But what you may have missed is the opportunity to pool together with the other members of your strata, and then either do a joint venture or package up the property and sell the whole project to a developer who will build a unit block three times the size of your existing block.
I know . . it seems like too much work when you're busy and don't have enough time to meet all your existing obligations. Just saying though . . this is a great way to be unlucky.
Fortunately, there's a limitless number of ways to find your property luck. Once again, the options have been grouped into three main categories.
Before you sign a contract on that brand new studio overlooking the brick wall of the RSL (apologies for the sarcasm), speak to a mortgage broker who can talk to you about the range of options you have to (a) increase your purchasing ability, and (b) advise you on the best loan facilities available . .because lending rules change all the time.
If you have more than one property, it is also a great idea to speak to a property savvy accountant who will talk to you about how to structure your next purchases. A note of caution in that it isn't easy to find good advisors and it does take time to meet with them, but do the leg work now and you'll make money on the back end.
Buy property that will perform. Any property you purchase – even your home – should have opportunities for uplift. Your selection will of course be based on numerous criteria, but if you're considering a one bedroom unit in Gosford (or anywhere you're considering purchasing something off the plan), at least take five minutes to search online to see what's available in the surrounding area for the same purchase price.
Anything that has a rental guarantee is a big red flag and signal for you to 'smile and wave' as you walk right on by that purchase. Remember to also check the strata fees and understand that if you buy into a complex of any kind you will need to get permission for a multitude of activities including where you can hang your laundry and whether pets are allowed.
The key difference between units and houses has always been that you can more easily knock over a house and build multiples on the block, however in NSW the changes to strata legislation have also made this possible (albeit with a few extra steps) for older unit blocks.
A rock solid way to find property luck when buying is to get independent, experienced and unbiased advice. Yes, this is what we provide at The Property Frontline and we are happy to provide a sense check for free. But you can get advice from other people who have a great track record of success in property. Be careful who you listen to, and validate their advice.
Know that if the person providing the advice is receiving commissions from the sale of a property, they are providing you with biased advice and therefore limiting your range of choice. Watch out for property 'educators' who 'train' you in their system and 'find' you a property at the end of the process. If you're not sure about any recommendations in this situation, once again just do a quick online search to check other property on the market.
Before you sell anything, get advice on the range of options you have. This should include speaking to a quality property advisor, mortgage broker or good accountant. You may find that selling is the last thing you need to do to access your equity, and you may even have access to more money than if you sold (hello capital gains tax).
Speak to more than just your local agent, but don't pass them by either. Reputable real estate agents will provide good advice on the best way to maximize the value of your property. Great agents will help you consider the option of pooling together either with your strata members or with your neighbours. Our cities and suburbs are constantly changing so what was not feasible last year, may be totally worth your while this year.
See . . .it's easy to join the growing band of people with 'property luck'. I want you to be one of them. Katie D this one's for you. Happy St Patrick's Day.