In today’s show you will hear the 10 things you must consider when buying an investment property with Michael Yardney, from Metropole Property Strategists.
Kevin: With the property market doing so well, obviously more people are interested in getting into property. We can see that in the numbers, too, of people coming to listen to Real Estate Talk. It’s always great to have new people listening to us. We’re here to help you work out a plan to succeed.
There are some things you should consider when buying an investment property. To walk us through the ten most important things, Michael Yardney from Metropole Property Strategists, who is a regular on our show.
Hi, Michael. It’s good to be talking to you again.
Michael: Hi, Kevin.
Kevin: A bit of advice for new investors, Michael – the things you think they should consider?
Michael: I think it’s a good way to start, but it is also a good recap for people who are thinking of getting into the market again. I think the first step is “Why?” What are you trying to achieve? Is it money? Is it wealth?
I think for most people, it is financial freedom. Remember, the bricks and mortar really isn’t the end goal. Rather, it’s the vehicle to get you to what you want to be. Therefore, treat property investment as a journey, and don’t get lost along the way.
I guess the next step then is to understand “What strategy are you going to put together to get you there?” My preferred strategy is high growth properties. I know some people look at cash flow, but my strategy is to buy a property in one of the big capital cities that has multiple pillars of growth drivers. I look for properties below their intrinsic values in areas that are going to perform well in the long term.
I look for something that is a bit unique, a bit different, or special, and I like adding value. That’s the sort of strategy that I suggest people consider.
Kevin: What about the type of property, Michael?
Michael: You need to own the sort of property that’s going to be in strong demand by – in my mind – owner-occupiers. Most investors think like investors, but to me an investment-grade property is an owner-occupier property, not because you’re going to sell, but because owner-occupiers are going to buy similar properties around you, pushing up the value of yours.
Over the last years, the trend seems to be more people are trading back yards for balconies, they’re going to want to live closer to the action in the inner suburban areas of our big capital cities, and many of them are in apartments and townhouses.
Kevin: What about old or new? Should that be a consideration?
Michael: It definitely should. I like new properties, but I don’t like paying a premium for them. Many new properties currently are in those large high rise monoliths, which that don’t have the level of scarcity.
So while I like new properties, I don’t like paying a premium for them. I’d rather buy an established property and add some value manufacturing some capital growth.
Kevin: Michael, how particular are you about where you buy?
Michael: I think when you buy a property you have three things to play with. You have your price, you have location, and you have the type of property. Price is usually determined by your lender, so you haven’t got much say in that. I think location is the critical one where you buy –you’re right, Kevin. Then, if you can buy in a good location but you can’t afford a home, I’d be buying an apartment.
So location is going to be the difference between those properties that outperform and those that don’t.
Kevin: Watch out, too. On a regular basis, I record some videos with Michael on the common mistakes investors make. Recently, Michael, we talked about the timing of the market and when you should buy.
Michael: I think there are investment opportunities at most stages of the cycle. I’ve found most successful investors can make money at any time. Sometimes it’s going against the crowd when the market is quiet, but even in these strong markets, there are opportunities.
The right time to buy is when it suits your personal financial circumstances, and then what you would amend is where and what you buy. But there are always opportunities, Kevin.
Kevin: What about “What I can afford, and how I should structure it?”
Michael: The first way you would do that is to go to see a proficient finance strategist – not necessarily the bank, but someone who understands how to set your finances correctly. I’d always suggest you get your loan preapproved, because that is going to be one of the factors that affects where you buy and the sort of property you can buy.
Also, I’d be speaking to accountants about the right ownership structures, the right entities. It could be in your own name, it could be in a trust. Some people buy properties in self-managed superannuation funds, but you have to be very careful and get the right advice if you do that.
But you have to do that beforehand, Kevin, because you have to get the finance in the right entity.
Kevin: Who should you ask for advice?
Michael: I think if you’re the smartest person in the room, you’re in trouble. In my mind, residential real estate investment is a team sport. You need to get a good accountant – as I’ve said – a smart solicitor on your side, and a good finance broker.
I believe in today’s world when the other side – the seller – has agents or marketers on their side protecting them, you should also have an independent property strategist on your side protecting you.
Kevin: Asking about advice: not wise to get it from friends and family?
Michael: Unless you have multi-millionaire parents, the answer is probably “No.” Everyone has an opinion on real estate. Everyone thinks they know about it because they live in a home, but the simple answer is unless you’re getting advice from wealthy people, I would be having fun with friends and family but not necessarily asking them for mentorship in wealth creation.
Kevin: Great advice. Michael Yardney from Metropole Property Strategists. Michael, thank you so much for your time.
Michael: My pleasure, Kevin.