Pure Property Investment specialises in sourcing investment properties to suit our client's financial goals. We aim to understand our client's financial position and their financial goals. We educate our clients on the principles of property investment and create investment strategies that will overtime build pure financial freedom.
On balance, I think it’d be bloody spectacular. Apart from those wondrous surprise moments that accompany unexpected good times with friends and family, it would be very cool to have the unfair advantage of knowing what’s coming down the road.
What’s the best school for your kids? Check your crystal ball and see where they’ll be happiest.
What undiscovered holiday hot spot is bound to be overrun by a tourism juggernaut? Get there early and enjoy its unspoiled beauty before everyone ruins it.
Should I buy tickets to the grand final? Seek ahead and see if your team makes the grade.
And then there’s property investing. Imagine the ability to know in advance what locations, property types and price points will maximise your returns. You would move fearlessly into your investment strategy, confident that success sits just around the corner.
Well – I can’t promise you a magic mirror that will reveal all, but I can divulge a way to make your future self very happy about the real estate decisions you make now.
Property Plan Advantage
The first step will obviously be to layout your investment journey in advance. By running through your goals, dreams and desired, and matching them with your financial resources and personal resilience, you’ll be able to put a strategy in place to head in the right direction.
Your plan should help keep you on the path, but also provide enough flexibility when needed.
One of the great things about real estate is there are already heaps of resources available to investors that can help mitigate risks and boost potential upsides. We have town plans, sales histories, overhead mapping, building guidelines – all sort of info that can make us among the best-informed participants of any investment vehicle.
The Golden Rule
Now you’ve got your plan in place and your resources on hand, here what I think you need to do to maximise long-term success.
I’ve spoken before about the evolution of the investor, but I also believe in the evolution of the investment too.
As you accumulate property on your portfolio, you’ll have investment parameters set by your current circumstances. In the initial stages, you will be restricted by your available household income and finance approval level. You might also be tethered to a property type or particular locations.
Here’s where I believe challenges can be opportunities.
Use these restrictions to your advantage. If you can only afford to purchase in the lower price, high-yield outer suburbs of a metropolitan centres, then do it – but add a twist.
Every suburb offers a variety of properties with different strengths and weaknesses. Look specifically for those that offer you options in the future to boost their value.
A Few Examples
There are plenty of ways you can angle-shoot a property. Here are a few I’ve come across.
If you’re buying a second-hand unit in a traditional 1970’s three-story walk up complex, pay attention to the size of the parent lot and the current zoning. The unit might be affordable – yes – but did you realise that with enough land area and frontage there’s a possibility a future developer will be keen to acquire the entire unit block at a premium?
If you’re not sold on the idea of appealing to a developer, I’ve even heard of body corporates who’ve banded together and built an additional unit on their underutilised common area. It’s not a crazy idea and the end profits can be substantial, particularly if there are only six or so owners.
Duplex and triplex investment is great but have a look at the local authority’s town plan. Is there a chance that you might be able to strata and split the units to create even greater returns in the future? You have the upside of high rental yield while you wait for the market to rise too.
Old homes on decent size block can be very price effective, however pay close attention to the neighbouring properties. How long have the owners been there? Are there demolition controls in place? There’s every chance you might get an opportunity to acquire the adjoining property sometime in the next decade or so and, hey presto, you’ve got a development site.
So, do something your future-self will thank you for. Keep your eyes open for an angle. Look for ways to ensure the holding you buy now will become one of your most profitable ventures in the future, simply because you took some time to gaze into the distance and explore the possibilities.
There have been absolute volumes written on the subject of whether investment properties geared towards capital gains or cash flow are best.
The argument is founded on the long-held belief you can have either high rental return or huge value upside, but not both.
This opinion seems to have remained substantially unchallenged by academics and the media, and as much fun as it is watching the intellectual cage fight unfold, I believe there’s a simple answer to this question
I’ve bought and sold several hundred properties to date (personally and professionally) and I can say with confidence the idea you can’t have a balance of return and growth is just plain wrong.
The fallacy you’ve been fed
What’s sold to us as investors is that each potential property’s appeal has drivers that fall in favour of one side or the other.
For high cash flow holdings, it’s said they’ll be located in areas of high tenant demand. They will offer the ability to achieve more return per dollar outlaid in purchase because every possible square metre of space is being utilised for renter appeal.
They will be in locations where strong employment – particularly for transient workers with high paying jobs – will see renters fighting over the available stock.
It’s also said high yield property will often be located away from major capital cities and the majority of surrounding residents will not be homeowners.
Finally – many believe high cash flow properties rarely achieve decent capital gains.
For capital growth holdings, it’s believed these will be located in suburbs where homeowner demand is huge. Great schools, convenient shopping and ready access to a CBD is a must apparently.
According to this argument, capital growth property is best found in blue-chip inner-city locations. It will be unique in design and appeal which improves its scarcity factor. This sort of ‘limitation of supply’ supposedly translates into stronger growth.
Classic blue-chip holdings are deemed to be detached houses in high price addresses that avoid secondary fundamentals such as busy road frontages or undesirable neighbours like service stations.
The risks of each
Both approaches to investing have their benefits and flaws.
High cash flow is great if your available funds for investing are limited. The high yield will help you service the loan and stay ahead of repayments.
The downside is, as a gross generalisation, high yield does not create the sort of long-term returns that help investors achieve real wealth. It may put you into a comfortable position, but the capital value upside is limited.
In addition, if you buy high yield in a regional centre that relies on a limited economic base of, say, one major employer, they can be risky. Ask anyone who was enjoying their seven-plus per cent yield in one of Queensland’s mining centres a few years back, but held out for more. They’re in a world of hurt now.
With high growth, the long-term upside is excellent. It’s a passive way to build extraordinary wealth, because if you hold $1 million-dollar property in a location where values go up by six per cent per year on average, then in year one alone you will have likely gained $60,000. High growth also works with the magic of compounding which sees exponential value rises over a long time. The longer you hold it, the wealthier you’ll be.
There is a downside however. High growth, blue chip usually costs more to acquire and many investors will overextend themselves to become landlords. In addition, the relatively low yield will not assist all that much in servicing the loan. High-growth investors need to be super careful. A rise in interest rates or unexpected job loss can be devastating.
To me, the answer is simple.
I believe you must first determine what you can afford to pay and where the best growth potential locations are for your price point.
Next, I think you should look at property types within your location that will appeal to the local renter base. For example, If the most tenants are students, don’t look for a home with high-end finishes and plenty of family space. Seek a practical layout with the potential for privacy. Perhaps you will find a duplex or triplex in this growth zone?
If you can achieve the best possible yield in a growth locations, it buys you time in the market… and time is your friend.
Look for property that has a future twist too. Something that could be a renovatable home or re-developable block that will generate additional equity down the track.
These properties do exist, but it takes a lot of effort and analysis to locate them. This is what we do as a specialist buyers’ agent and property investment advisor. If you feel overwhelmed and out of your depth, then talk to us. We can strike the right balance with your next purchase.
Is The Wollongong and South Coast Market Slowing Like Sydney Did? - YouTube
South and north of the Sydney market where the opportunities are down from Wollongong, further down the south coast, central coast and Newcastle and beyond. They’re probably about 6 to 12, sometimes 18 months beyond where we are as cycle wise. You know Wollongong grew about five and a half percent. Newcastle grew about seven or eight percent last year or this past 12 months, but they’re on a downward trajectory, so I expect them to probably be with Sydney’s and about six to 12 months and they’ll probably be in that position longer than what Sydney will be because the jobs are still going to be focused around the Sydney CBD.
One Bedroom Apartments in Sydney. Are They Worth It? - YouTube
One bedroom apartments as an example where a one bedroom apartment sitting as part of this grand scheme will probably that later. Part of that answer is there’s a lot of construction going on. The apartment space, there is still certain pockets in probably more the established areas with minimal amounts of available stock in the newest space that one bedroom apartments will do. Okay, and I’d probably more refer to those walkups red bricks in really the quite strategic areas that are walking distance to all amenities and probably more preferential to baby boomers downsizing and that’s probably the other components are really oversized luxury one bedders in certain areas where again, there’s limited available stock, but the problem with both of those is right now and in the Sydney market is that yields a pretty, pretty terrible. So to hold them cash flow wise is going to be a big stretch for me to justify that over two dozen different markets across Australia right now. I would never ever be able to justify that in this point in time.
It’s a fascinating question for me because I look at the say I’m a longterm renter and I think a lot of people in this day and age are okay with longterm renting. The fascination with wanting to own is something that’s always going to be completely individual and I think that’s the part of the question there to say if you have to own physically to feel like you have succeeded or if that you feel like you’re secure. Yeah, that and you can raise a family and that’s what you need. Then I would say if that’s always going to be the fear, I’ll I will would deem that there’s probably always going to be a bit of confirmation bias that you always think it’s going to be better to buy than to rent and it comes down to what is your mindset? Are you comfortable never owning where you live, but still creating wealth elsewhere?
So fundamentally you can do so many predictable algorithms to say; I’ve got x amount of growth. If interest rates stayed here, if I went on a principle interest repayment of this year, then it’s going to lend. Then therefore say that my spreadsheet will tell me that this is the best time to start thinking about buying or selling or continue renting or vice versa, but I think that you could do that to the cows come home and you could stress yourself out and you could run through a million scenarios and you can basically get to different outcomes every time. For me it more comes down to what is the really, what is your passion and where does the fundamental need lie here and if you can get past the deemed yeah, I guess social pressures of owning your own home and knowing that your creating wealth and setting up your future, your family’s future and other markets.
Then those discussions kind of become redundant, so if you can’t, then for me it comes down to saying, I’d say jump in as soon as you potentially can afford to jump in because what will end up happening is you become disappointed in the fact that you didn’t buy when you should’ve bought and you’ll always find a reason and you’ll always second guess your decisions and 100 percent and you say it so often. You see so very, very often and typically what Lisa to people doing nothing. And that is usually the worst scenario. I’ve got actually quite a number of clients who I’ve been speaking with for almost, you know, some of them I can think of two or three years and we’re in. We’re at ground zero still and they’ve had capacity to start investing a long, long time ago and it’s not even one market. Now. We’ve talked about buying one market. Now we’ve stopped buying in that market because the growth has come. Now we’re in a different market and they’ve not chosen to buy in that market because they thought, well, well I’m just gonna. Hold out for this market and the pattern is obvious and I think ultimately comes down action and letting perfection get in the way of profit is always going to be the drama for most in that position.
Sydney's Future. Will It Perform As Well As It Did In 2013/2015? - YouTube
Where we’re at right now in Sydney and and look, we’re probably into our 11th, 12th, 13th month depending on what suburb you’re looking at, have a probably categorized sideways if not some declines in certain markets in Sydney and to what, to be honest, Melbourne’s only probably six months behind the same trend and we expect them to run more or less pretty similar correlations over the of the forthcoming cycle. We’ve got a big issue with a income to debt ratio and we’re sitting anywhere between eight and 10 times annual income to debt ratio. Historically we see that needs to be sitting well below probably six, six and a half times to see opportunity to grow. That’s part of that equation is wages growth. We don’t have an issue with with jobs at the moment and I don’t think over the next five years in Sydney specifically, especially in some of these really big infrastructure project corridors from the southwest to the west and even part of the up, the guts through in a west, et cetera.
There’s jobs, jobs galore and well paid jobs, white collar, blue collar, right across the board, skilled and unskilled. So I think the jobs are going to be there. The issue is affordability in conjunction with people being able to borrow money. So I think we need two things to start seeing this wave come back is one of which is wage growth, to see that debt debt to income ratio reduce. And the second, I think the second one is probably going to be that there’s going to have to be a restricted amount of supply consistently given to the market because we’re also going through this apartment building boom in Sydney is not a probably, i would say, they’re not going to be spared in certain areas. It’s not right across the board. We’ve got a lot of population growth, but we’re also got alot of construction. So I think we’re probably three to four years for those apartments really going through the market and then getting back to probably what I would deem to be an elite and an equilibrium position where you’ve got a deficit which we had for the previous 10 years in addition to a ramp up of wage growth and then cheaper money.
Changes In The Funding Environment And The Investor Approach - YouTube
I think there’s a lot of property investors as well as potentially other property investment strategists who have had certain modus operandi over the last 10 years which worked in certain cases. But when you start to get a changing environment in funding and in growth and in yields, you can’t just keep running the same race because unfortunately the different competitor and you’ve got to change.
Capital Growth And Saving To Buy Back In Sydney - YouTube
Very interesting question. I’ll reflect on my own journey when I sort of read something or hear something like that. Whereas my position, I started investing in my mid twenties and at the time Sydney was the market that I found opportunity in, um, as well as Melbourne given where obviously fast forwarding well over a decade from that point where the markets are for someone potentially with a restricted budget, with the intention longterm to come back into Sydney is a few things that I’d look at their probably the couple of the which is a capital growth opportunities be cashflow that’s going to allow you to hold that property and obviously see as the intention is I want to come back to the Sydney market to buy their home. I would look at it to say the question for me is yes, capital growth is, is obviously paramount, but then the other questions that what’s your ability to save?
Because if we’ve got a cohort of five, six, seven year timeframe between when you want to get back into Sydney, if you’re going to get put that deposit into a secondary market, whether it be Brisbane, whether it’d be Armadale, whether it be anywhere, you want to be able to make sure that you’re not necessarily restricting your ability to buy back in Sydney as you want to and, Secondly, I’d also want to make sure that part of that plan is to actually be able to retain that investment because if you’re planning to say, I want to invest and then, want to go and effectively pillage and take that money and then put it back into another market where I want to buy my home, chances are you’re not going to achieve either because you’re not going to get the capital growth. You’d expect the cycle you’d really want to be holding through.
It’d be, I’d say minimum 10, more like 10, 15 years mindset. However, if you’re not going to give it that time, you probably going to get a restricted amount of growth and always. Our rule of thumb is probably expect about nine percent of your total property value has to go up before you’ve made a penny in property. You’ve got stamp duty, cost entry, costs, exit costs, any kind of capital gains tax until you’ve made between eight and nine percent, you’ve effectively made no money, so I would say that to answer the question, make sure that you have really the right intention here to make sure that part of this investment is to hold it and the numbers are even if that property doesn’t go up in value, that you’re still saving money to come into Sydney, but then secondly, if you’re going to look at assessing markets that those markets are going to fit. Obviously your borrowing capacity, but b, are also going to allow you to continue to save in the background. So somewhat cashflow neutral. Not necessarily been the only focus, but capital growth is also going to be an overall disclaimer aside. That’s the overall achievement that needs to be needs to be hammered in.
The property investment advisory industry offers up a diverse range of personalities and marketing styles. Some advisors are self-made success stories who build their business profile on the back of long fought and hard-won experience. There are also the ‘altruistic’ types who want to genuinely educate the investor community on the ways real estate can set you up for a comfortable future life. There’s also, unfortunately, opportunists among the ranks who’re motivated primarily by generate their commissions and taking kickbacks.
I sit on the board of the Property Investment Professionals of Australia (PIPA) which is an organisation pushing hard to regulate these sharks away from vulnerable investors. Unfortunately, it’s a big industry and there’s only so much we can do at the moment, so responsibility for avoiding the shysters falls heavily on the shoulders of investors themselves. When you get an opportunity to talk to advisors, I urge you to consider a particular gauge which has served me well in the past.
If someone tells you they’ve discovered THE magic strategy that guarantees success to any investors, I suggest you run away quickly and not look back. Because, in my experience, property selection is about the individual investor, not the investment strategy.
A Bad Fit
The process of building a successful property portfolio doesn’t follow the same path for every single investor, because the important metrics of what to invest, where to invest and the expected outcomes vary between individuals. If making gains in real estate were as easy as one-size-fits-all, we’d all be retired by 30 and taking our private jet to the Maldives.
There are pros and cons to almost every sort of investment approach depending on the stage you’re at in your real estate journey. I’ve seen books which create the illusion that you can build a huge multi-property portfolio by adopting a singular approach. ‘Just buy new duplexes’ or ‘Only look for unapproved development sites’ or ‘Never buy new units’ or ‘Always but new units’… the list of contradictions seems endless.
In truth, most strategies have a mix pros and cons when it comes to things like yield, value gains, tax advantages, development profits and so on.
My opinion is it’s not the investment, but the investor that matters.
Begin With A Plan
When you start out in property investment, your guidelines on that first purchase will be set by a frank and fearless assessment of your financial position.
You need to know your number on your available cash flow and how much the bank will lend you. This is where a talented, experienced mortgage broker really comes to the fore.
Now, sometimes your start in your 20’s with no dependants and a modest wage. This type of investor may need to consider a slightly higher yield to help service the debt, but they have time on their side and can afford to wait for long-term capital gains. They’re probably going to see their wages rise in the future which will boost their borrowing power. No need to chase blue-chip just yet I’d have thought.
What if you’re starting in your 30’s? You might have paid down some home loan – not much but enough for a deposit on an investment. Alternatively, you may have actually been renting for a while now and don’t want to move – perhaps rentvesting is going to be part of your plan. You might be in a serious relationship but finances aren’t yet combined. Perhaps you still need some decent yield but can do a little renovation too. A middle ring character home might suit your style.
In your 40’s your wages are starting to look very healthy and you might decide on a little tax planning and depreciation benefits as part of your considerations. There could be two incomes in the house, but young kids with schooling costs to allow for – how is that affecting your cash flow? Is there the chance to look at doing a small development project so you can realise a decent profit for future investing? Is a joint venture on the cards?
Heading toward retirement years, you might want to reduce debt but also acquire higher yields to pay for that long planned around-Australia trip? You don’t want the high stress of managing a portfolio either, so simplified investing away from the rigours of development would be essential. You might even look toward locking down a commercial holding at this stage.
The Long Game
My point is that the idea just one strategy or property type is the gold-standard for success is ludicrous. Rigid adherence to one style of investing is reckless and inefficient.
Property investing toward a desired goal is an active pursuit that has you following a plan but retaining the ability to pivot as life’s circumstances alter. It’s how opportunities are captured and returns maximised… and diversity in your strategy is sure to be a result.
There a really cool graphic called “The evolution of man” that I want you to recall. It’s the one which tracks our species progressive elevation from slack-shouldered apes to majestically-upright homo sapiens.
I’ve often seen this picture and thought about how this Darwinian theory really does apply to all sorts of life’s element… including investing.
I thought it was time somebody told the story about the evolution of the investor – with their tongue placed firmly in their cheek – why not me?
By the way – to enjoy the full force of what I’m offering, you really should read this blog with David Attenborough’s voice narrating in your head…
And so, it begins…
First time investors have similar needs. They’re eager and engaged – even playful – quick to learn and keen to become part of the pack.
First timers are generally inexperienced and will require both guidance and understanding from more seasoned members of their community.
For the first timer, simple initial steps into the property jungle are necessary.
These novices often need to watch their finance position, and require an opportunity to establish their credentials as a reliable borrower before they can move up the pecking order.
Property-wise, it should be nothing too complex. A well-located unit or house with a solid potential renter base and above average yield is their best environment – with great long-term upside in value an absolute must.
Rental returns should be strong to allow some income buffer straight away. In addition, a holding with some opportunity to improve value through renovation or future small development is always handy.
Emerging from the trees
As they graduate beyond this initial holding, the investor will look to become more adventurous.
Armed with the practical knowledge of how to locate, negotiate, secure and maintain that first investment, the second-property buyer will look to replicate their success. They may choose to stay close to their comfort zone, picking similar properties to the first, but all with a view of doubling or tripling their outcomes.
Their position in the investment lexicon now established, they occupy a thrilling space in the sector where the possibilities seem endless.
With a few runs under their belt, the investor will begin to seek more adventure with their holdings and look to acquire bricks and mortar with a bigger potential twist.
These are properties where, with a little imagination, they can make some impressive additional dollars. Expect this more experienced species to seek larger blocks with long-term redevelopment potential, or units in small complexes where the Gross Floor Area is being underutilised.
These more experienced investors have a distinct financial advantage over their often-younger, less experienced counterparts. They have battled for their financial supremacy and, as victors, now have their choice of the most fertile property options.
Leading the pack
Given their years spent navigating the nuances and hurdles around basic property investment, the next genome of investor will be keen to get their hands dirty and blaze a path to success that other might follow.
Small development projects will fall within their spectrum as they gain proficiencies in splitter block, speculative home ventures and even unit and townhouse projects.
The savviest and well planned among them will have bought smart in the early part of their investment journey. For these forward-thinking investors, looking back at a well purchased initial holding will reveal a potential development prospect they can now turn to profit.
These kings and queens of the property jungle will also seek new frontiers in finance, often building on an already established symbiotic relationship with a mortgage broker to help guide them past the pitfalls of unearthing development funding.
Perhaps the most exciting stage for any investor is when they break free of their current community and venture even further into the complex but profitable realms that sit beyond the simple residential space.
These investors will look to make their mark, often beginning with a simple industrial shed holding, but also capable of growing toward larger scale office and retail deals if the funds allow.
For some, it’s impossible to say goodbye to the sector that’s served them so well. As such, some find a compromise in advanced residential options and look to acquire a block of flats, or even decide on a joint venture arrangement to try their hand at multi-level unit schemes.
They may even choose to experiment with structure, using funds from their superannuation or family trust structure to maximise their outcomes.
Throughout the journey, the investor evolves along with their property portfolio, but always with the long-term in mind.
The best investors help elevate their community as a whole, providing a beacon of success for others to follow.
When you next come across one of these investors in their natural habitat, take time to observe how they make the most of their surroundings. You might learn something useful.