If you’re a hard working professional, whether medical, legal, financial or in natural resources or defence, it’s quite likely you're flat out. You'd probably love to invest but have limited opportunity to properly research investment types. You'll also be struggling to find the perfect investment that quietly builds for you and you don’t get heavily taxed on. We all know how popular property investment is in Australia. As a national past time it's up there with cricket, football and mother in law jokes.
The Australian Financial review found that a good 30% of wealthy Australians invest in property as opposed to 20% of their counterparts in Asia. As a nation we've had a long love affair with real estate investment that shows no signs of diminishing.
It's also one of those areas where many people feel confident that they have a winning strategy. It's definitely a subject that lends itself to armchair experts. The simple fact is, the majority of property investors make mistakes.
An ATO study shows that while property investment is still extremely vigorous in Australia, 72% of investors only own one property. If the goal is to develop a strong portfolio then what is everyone doing wrong?
Here’s a few quick pointers of what NOT to do with property investment as a professional:
1. Don’t go for the big $3 million plus investment property
You’re much better off investing in several "smaller" properties, say a string of $500-900k residences and building a solid portfolio. The problem with the stupendous mansions is that they don’t tend to have a great capital growth. Their demand is limited and they’re part of a boutique section of the market that can be very volatile. They don’t always move the way you’d expect and their sheer size and price means that a large section of the market is cut out.
2. Not understanding negative gearing
Many people think they’re experts on negative gearing but this is one of these areas where you can easily get it wrong. For instance, negative gearing can leave you exposed to sudden interest rate rises, or if there’s a sudden drop in property values that will also potentially leave you vulnerable. Negatively gearing a property certainly has benefits but it has to suit your needs as an investor. It’s something we’ve written about elsewhere.
3. Don't follow short term trends
Here’s where extensive research comes in. Much of the volatility in the market comes about through a lemming like behaviour. Investors can easily panic and jump aboard whichever suburb or area is suddenly experiencing a boom. However, history tells us that they can be the worst kind of investments to make.
Consider Perth a few years ago. The mining boom was at its peak and real estate was at a premium. Apartments and houses were actually more expensive than Sydney at one point. In hindsight it was a boom that was unsustainable. Many investors who poured dollars into Perth got badly burnt as the resources market bottomed out and prices plummeted. Today Perth is a good long term capital growth investment but all those investors who snapped up premium apartments around the Swan River, are probably regretting it. Certainly rental yields have dropped as has capital growth thus stripping the investor of two valuable streams of income.
The kinds of areas that are good to invest in are not the glamorous, boom suburbs but the steady long-term capital growth regions. Typically the boom towns will hit a ceiling it they haven't already. It's also about understanding the region's peculiarities: it's infrastructure; economy and any planned developments. The local factors can be decisive in how well a suburb will grow. A flood of new apartment complexes could have a negative impact if there’s an oversupply, which leads to a lack of demand and drop in rental income.
Finally there can never be a magical, one-size-fits-all, approach as each strategy will vary wildly depending on the investors needs. What is crucial is a depth of understanding and solid research of the property market. This is where DPN comes in.
DPN specialises in working closely with professionals and in creating tailored investment strategies for them. We understand you have limited time to research an area or choose an investment strategy. It can also seem very overwhelming trying to do it on your own. What we do is create a plan carefully based on your needs and ambitions. This is a long term plan to set you up for retirement and beyond.
Benefits for Professionals*
We offer a holistic service that means we’re carrying the stress every step of the way. We have special deals for professionals and can offer a range of special benefits from our extensive network of suppliers.
95% Lend on your home with no mortage insurance.
90% Lend on your investment properties with No mortgage insurance.
Free Trading and Asset Structure review
Greater discounts on interest rates negotiated by DPN with accredited lenders
Personal Risk Review and Analysis by a Financial Planner within DPN’s affiliate network
Legal fee rebate of $1500 paid by DPN to the legal professional of your choice on your first investment property purchased through DPN. (If you are a legal professional we can adjust this for you!).
Rebate on SuperFund establishment by a certified professional within DPN’s affiliate network to the value of $1,000 if a loan or investment property are facilitated by DPN for your fund.
*Offer is subject to change without notice and eligibility criteria applies.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879.