The questions to ask to discover your ideal strategy – Michael Yardney

How important is the correct strategy to building your portfolio?  Is there one strategy to suit everyone?  Michael Yardney says not and he talks about the questions to ask to help frame the strategy.
Kevin:  Our theme for the show today is having a strategy around building a property portfolio. No one better to ask that question than Michael Yardney from Metropole Property Strategists.
You’re doing this all the time, Michael. I know you have a strategy, but you’re helping other people build their own strategy to build a portfolio, correct?
Michael:  Correct, Kevin. Really, if you don’t have a strategy, any road can get you where you’re heading, but any road can get you lost as well. So, it’s important to begin with the end in mind, and then find a strategy that’s worked for others over multiple cycles to help get you there.
Kevin:  Do you find there’s one strategy fits all, Michael, or does it depend on your stage of life?
Michael:  You’re right, Kevin; it will vary upon your stage of life, your risk profile, what you’re trying to achieve. I have a strategy that’s worked for me and for our clients, but I accept it’s not for everybody. Some people are not looking for a big asset base; they’re looking for different things in their life.
Kevin:  When you’re helping someone build their strategy, Michael, what are some of the key questions you ask that maybe someone should be thinking about when they’re putting it together?
Michael:  The first thing is where are you now – in other words, what’s your financial position now – and where do you want to be? Next is to understand what their time frame is. Somebody who’s in their 50s has much less time and can’t afford to take risks than somebody who is in their 20s.
We also have to understand what their risk profiles are. And what’s ahead? What are their job prospects like. Are they going to be on steady incomes, or are they going to stop and have a baby?
It’s a long term process that you can’t plan in concrete. I know some people try to give out 40-year spreadsheets. Kevin, I don’t know what interest rates are going to be next month. So, what we do is set some big goals and then recognize that the plan is going to change along the way.
Kevin:  Some of the key things I’ve heard you talk about too, Michael, are preparing and making sure that you have some sort of a buffer. Because as you rightly said, you don’t know what’s going to happen even tomorrow, next month, or even next year.
Michael:  What you have to do is plan for the future but also recognize that times will change over the 10 or 15 years. We’ll have some good times, some bad times, some periods of high interest rates, some periods of low interest rates, some times when property values are going to decrease, and other times when they’re going to boom.
So, what you really need to do is cover yourself for the downside while looking forward to the upside. That means protecting yourself personally with life insurance and income protection insurance. It means protecting your property portfolio to ride the storms by having financial buffers in place.
And it means owning the sort of assets that are going to be strong and stable. By strong, I mean they have to grow at wealth-producing rates of return, but by stable, Kevin, I mean that they’re not going to fluctuate in value much [2:53 inaudible] having the ups and downs of the more volatile regional mining and secondary locations, Kevin.
Kevin:  Michael, I appreciate you giving us your time and I know we’ve caught you at an airport there. Can I just squeeze one other point in? I received an e-mail from Troy that he’s requested I seek your opinion on, which I’m very happy to do, and thank you for giving me your time.
Troy writes: “Come July 1, with stamp duty cuts in benefits, I’d like to know if buying off the plan before the end of the financial year is wise, or waiting until after first-home buyers or just general buyers have done their thing.”
He wants to know your opinion on that, Michael.
Michael:  Well, Troy, I don’t think that short-term fluctuations – whether it’s in tax benefits, incentives, or market cycles – should affect your long-term plans. Of course, everyone wants to buy at the best price or take advantage of First-Home Owner Grants or stamp duty savings, but please don’t make that your major consideration. The time to invest is when you have the finances right or when it’s the right stage of the property cycle for you.
This is, in my mind, not the right stage to buy off-the-plan properties. Most recent results have again shown that prices are moderating, particularly in our two big capital cities – Melbourne and Sydney – but also in other parts of Australia.
Banks are being very cautious about lending for off the plan because in general, most people recognize there’s a glut of off the plan properties. And people who buy them are going to end up regretting it because their contract value is going to be significantly more than what the end value would be. In other words, they’re going to have an equity shortfall. They’re going to have difficulty financing at the end.
This is happening in every state in every location at the moment. So I’d be avoiding off the plan no matter how good the incentive. It won’t make up for buying a second-grade property, Kevin.
Kevin:  Michael, thank you for sharing your wisdom with us, and safe travels wherever you’re going. And thank you, Troy for your questions.
Thanks, Michael Yardney from Metropole Property Strategists. Thanks for your time.
Michael:  My pleasure, Kevin.

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