9 rules for successful property investing

There’s little doubt that our property markets have slowed down from their heady heights


And there are so many mixed messages out there about what’s ahead.

But what is certain in these times of uncertainty is that some property investors will grow their wealth by taking advantage of the opportunity the market is presenting them.

While many Australians will sit on the sidelines waiting for someone to ring the bell heralding the property market has bottomed, savvy investors will be out looking for and buying investment opportunities created by the current buyers’ market.

So let’s look at 9 time tested rules these successful investors use to make their fortunes.

Even though they think they are investing, many property investors are actually speculating.

They buy a property emotionally, often near where they live, where they holiday or where they want to retire.

Then they hope that the market will appreciate.

This makes them dependent on outside market conditions to produce a profit.

Smart investors do it differently.

They make educated investment decisions based on research, buy a property below it’s intrinsic value, in an area that has above average long term capital growth and then add value through renovations thereby “manufacturing” extra capital growth.

Wise investors never forget the age-old fundamental of buying the best property they can afford in proven locations and don’t allow themselves to get sidetracked by glamorous finance or tax strategies.

While the argument about capital growth or cash flow will rage forever, savvy investors know that the fastest way to build a substantial property portfolio is through capital growth.

While it’s true that land appreciates in value, it’s not really as simple as that.

Not all land is made equal and not all land appreciates at the same rate.

property build puzzle
property build puzzle

There’s lots of land (ample supply) in the outer suburbs of our cities but much of the demand there comes from a small segment of the market — first home buyers (restricted demand).

This keeps a lid on capital growth and makes these areas poor investment prospects.

Even worse…the land component, the bit that appreciates, usually only makes up around half of the total value of the property.

However in the inner suburbs the proportion of the land value to the total property price is usually considerably higher.

Remember it’s the scarcity of land that causes property values in these locations to keep rising and currently there is strong demand from a wide range of owner occupiers for properties in our inner suburbs.

This trend is likely to continue as more of us choose to live close to our workplaces in locations that offer better access to infrastructure like public transport, shopping and entertainment facilities.

As demand looks set to outstrip supply in the inner and middle-ring suburbs for many years to come, these areas are where successful investors will buy for long term capital growth.

Of course, not every property in a given suburb will make a good investment or have similar capital growth.

Savvy investors understand that investment grade properties are the type that will appeal to a wide range of owner-occupiers, since they make up the vast majority of buyers.

That’s why they avoid studios, student accommodation, holiday accommodation and serviced apartments.

After all it’s owner-occupiers, not tenant or investor demand, that push up property values in the long term.

city family urban suburb
city family urban suburb

Long-term demographic trends — where and how people want to live — will determine the type of property that will be in demand in the future.

As our cities mature there will be more one and two people households, meaning that secure medium-density apartments and townhouses will become the preferred style of living for more Australians as we swap our back yards for balconies.

If you are the smartest person in your team you’re in trouble.

Successful investors surround themselves with a team of top consultants and know how to discern an advisor — who is independent — from a salesperson.

Most investors believe there is a direct relationship between risk and reward — the higher the reward the more the risk must be.

But that’s not really true.

property data
property data

While most investors think the risk lies in the property or the markets or factors outside their control, the biggest investment risk actually lies with the investor — their knowledge, their experience and their mindset.

The best defense is a good offence.

Wise investors educate themselves and develop a level of financial fluency to make their investment journey as safe as houses.

Interestingly most successful investors don’t diversify.

They specialize by becoming good at one thing, or an expert in one area or niche, thereby getting great results.

During a boom, everyone is an optimist and expects the good times to last forever, just as we lose our confidence during a downturn.

Truth is…our property market behaves cyclically and each boom sets us up for the next downturn, just as each downturn paved the way for the next boom.

Just as it is doing right now.

Hmm…something to think about.

21138688 - 3d people - man, person and question mark. confusion
21138688 - 3d people - man, person and question mark. confusion

If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.

Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.

Originally published at Property Update.

Michael Yardney is a #1 bestselling author & a leading expert in the psychology of success and wealth creation Sharing stories on Success, Property & Money