Unlock the benefits of property investment as a professional

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.

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?

What do with property investment as a professional

1. Avoid $3M+ investment

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. 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.

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.

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.

 

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