A Complete Guide to Property Investment in Australia

When it comes to property investment in Australia, there’s no shortage of information available about how budding investors can ensure success.

And while learning how to invest in property is vital for all newcomers, understanding the pitfalls to avoid should also be a priority from day one.

As we have seen over the last few years starting with the Covid-induced property boom, followed by a decline, followed by a steep recovery of property prices while supply tightens, not all properties will increase or decrease in value at the same rate.

And, as affordability constraints continue to restrict borrowing and the supply pipeline remains thin, property values will likely continue to remain robust in the near future, but our real estate markets will remain fragmented, with some locations far outperforming others.

Of course, cycles and uncertainty are part and parcel of property investment, which is why careful asset selection is critical.

You also need the right team around you to help make the best investment decisions.

To help, I’ve put together a guide for property investment for beginners which includes a step-by-step breakdown to get started in property investment.

Step 1: Learn how to take money through property investment

Understanding exactly how to invest in property is the key for any rookie or seasoned investor.
You can profit from real estate in one of five ways, and if you get the combination right, you’ll make money from bricks and mortar.

Capital growth

To build yourself a sound asset base your properties will need to appreciate in value at wealth-building rates (in other words, above-average capital growth).
This will come from strong demand from owner-occupiers (who push up property values) and tenants (who help you pay your mortgage).

Cash flow

In other words, this is the income you receive from renting out the property.

Tax benefits

While you should never invest solely for this reason; a good tax strategy can help you manage your cash flow, decrease your tax obligations and increase your bottom line.

Accelerated growth

Getting your hands a little dirty (metaphorically speaking) by purchasing a property that needs a bit of cosmetic TLC through renovations or a major facelift through property development, is a great way to manufacture capital growth.

Inflation

Property investors have learned it’s too hard to make money using your own money.
Instead, they have learned to use other people’s money to leverage and gear.

In other words, they take on a mortgage, but over time, inflation erodes the value of the mortgage.

For example:

Take a $400,000 mortgage on your $500,000 property today – in 10 years’ time your property could be worth $1 million and you still have a mortgage of $400,000 (assuming interest-only payments) however in 10 years’ time your $400,000 won’t be worth as much due to inflation.

Step 2: Understand the property investment phases and strategies

When learning how to invest in real estate, it’s essential to understand the three stages of building wealth through the property from the get-go, which are:

1. Accumulation phase: This is the stage where you build a portfolio of high-growth “investment grade” properties, usually over a 10 – 15 year period.
2. Consolidation phase: The consolidation phase involves slowly reducing the debt on your properties, which conversely increases their cash flow when you need it the most.
3. Lifestyle phase: This phase is all about enjoying your life and living off the cash machine you have produced in the first 3 phases.

Step 3: Capital growth or cash flow – know the difference and which is better.

Now we know that capital growth is the appreciation of your asset and cash flow is the rent you receive, it’s important to next decipher which one is best for you.

When it comes to real estate investment, you’ll often hear two somewhat conflicting philosophies being bandied around.

Firstly, there are the “cashflow” followers; they suggest you should invest in property that has the capacity to generate high rental returns to achieve positive cash flow.

In other words, you want rental returns that are higher than your outgoings (including mortgage payments), leaving money in your pocket each month.

Then there’s the “capital growth” crew.

Their favoured strategy is to invest for capital growth over cash flow.

In other words, you need to buy a property that produces above-average increases in value over the long term.

Note: Investment properties in Australia with higher capital growth usually have lower rental returns.

In many regional centres and secondary locations, you could achieve a high rental return on your investment property but, in general, you would get poor long-term capital growth.

Having said that, there’s no doubt in my mind that if I had to choose between cash flow and capital growth, I would invest in capital growth every time.

It’s just too hard to save your way to wealth, especially on the measly after-tax positive cash flow you can get in today’s property market.

So, the first phase of wealth accumulation is the stage of asset growth.

Tips: My advice for budding investors is to understand that wealth from real estate is not derived from income because residential properties are not high-yielding investments.

Real wealth is achieved through long-term capital appreciation and the ability to refinance to buy further properties.

If you seek a short-term fix with cash flow-positive properties, you’ll struggle to grow a future cash machine from your property – it’s just that simple.

But here’s the trick…

You can’t turn a cash flow-positive property into a high-growth property, because of its geographical location.

But it’s all about knowing how to invest in property that can achieve both high returns (cash flow) and capital growth by renovating or developing your high-growth properties.

This will bring you higher rent and extra depreciation allowances, which convert high-growth, relatively low cash flow properties into high-growth, strong cash flow properties.

This means you can get the best of both worlds.

Put simply… cash flow keeps you in the game while capital growth gets you out of the rat race.

Step 4: Understand property market cycles

While timing the market should never be a key focus of any property investor, it is certainly helpful to understand that the property market moves in cycles.

Following the herd and buying when everyone else is on the property bandwagon doesn’t always work.

That’s often when the market is near its peak.

On the other hand, you have a better chance of grabbing a good deal in a buyer’s market, when the property is out of favour.

As the infamous Warren Buffet once said:

Be fearful when others are greedy and be greedy when others are fearful.

I personally have a strong view on investors trying to “time the market”, especially if they’re an established investor.

If you’re into real estate for the long haul (and that’s really the only way to play the property game) then time-in-the-market (owning a property that will outperform the averages in the long term) will trump timing-the-market (making a one-off capital gain, but then often missing out on strong, long term growth because you’ve bought in the wrong location).

Note: Time in the market is what delivers the most capital growth.

As you can see from the graphic below, if your $500,000 investment property increases in value by 7% per annum, it will be worth almost $1.4 million in 15 years’ time, but almost half of this capital growth will occur in the last five years.

This means the sooner you start your real estate investment journey, the better, as time and compounding will work longer for you.

Step 5: Learn how to choose the right property to buy

There are several types of real estate investment that you can choose from as an investor.

One of the most popular is the freestanding house, which serves as a great home for tenants looking to raise a family.

A moderate-sized pet-friendly family home with a fenced backyard in the right suburb often commands a high price in the rental market and delivers consistent capital growth because this type of property is in strong demand by owner-occupiers pushing up the value of similar properties around you.

However, our changing demographics mean more families are trading their backyard for a balcony, so if you want to target singles, couples, students, young professionals, and retirees, you could invest in a unit or apartment that best suits their busy lifestyles.

The location is of utmost importance in these properties, as tenants prefer a place that is close to their university, workplace or where they social activities take place, and is easily accessible to public transport.

While some people invest in a holiday home, in my mind these make poor investments as they are in seasonal demand and may remain untenanted for long periods of time, and their values fluctuate considerably depending upon the general economic cycle.

You see…when times are tough no one really wants to (or can afford to) buy a holiday home.

There are also:

• Townhouses – an increasingly popular style of accommodation for a wide demographic.
• Villa units – these make great investments because they are “landed properties”.
• Blocks of apartments – these are scarce, but sound investments for those with deep pockets.
• Student accommodation and serviced apartments – make terrible investments.. enough said.
• Commercial and Industrial real estate – sound investments for sophisticated investors who already own a substantial residential property portfolio.

Understanding the demographic market for each type of investment property is the key to knowing how to invest effectively.

As an investor, it’s important to understand who your target market is and also that location does most of the heavy lifting for your real estate investment success.

Note: Around 80% of your property’s performance will be due to buying in the right location, and the balance will be due to owning the right property, an “investment grade” property that suits the fundamental demographic in that location.

That’s why I suggest the following advice to help you learn how to choose the right property that will outperform the general market.

1. I start by looking at the macroeconomic environment – the big picture of how Australia’s economy is performing and in general, the outlook is good – especially in the eastern states.
2. Then I look for the right state in which to invest – one that will outperform the Australian market averages because of its economic growth and population growth. It is likely that both Brisbane, Sydney and Melbourne will strongly outperform the other states in the long-term as they’re forecast to deliver around two-thirds of the new jobs over the next decade.
3. Then within that state, I only invest in the capital cities and not in regional areas – again because that’s where the bulk of the jobs will be created and where most people are going to want to live.
4. I would look for the right suburb for your investment property – one with a long history of outperforming the averages. It’s all about demographics, as these suburbs tend to be areas where more affluent owner-occupiers want to live because of lifestyle choices and where the locals will be prepared to, and can afford to, pay a premium to live because they have higher disposable incomes.
   In general, they’re the more affluent or gentrifying inner- and middle-ring suburbs of our big capital cities, so I check the census statistics to find suburbs where wage growth is above average.
5. Then, I look for the right location within that suburb. Some liveable streets will consistently outperform others, and in those streets, some properties will always be more desirable than others and outperform the investments by increasing in value.
6. Then, within that location, I choose the right property, using my 6 Stranded Strategic Approach.
7. The finally… I would buy it at the right price. I’m not suggesting you look for a “cheap” property – there will always be cheap properties around in secondary locations. I’m suggesting you look for the right property at a good price.

Once you have a good grasp of the above strategy, you need to follow the 6-stranded strategic approach below to choose the right property to buy.

1. Buy a property that would appeal to owner-occupiers because they will buy similar properties, pushing up local real estate values. This will be particularly important over the next few years when the percentage of investors in the market is likely to diminish.
2. Buy a property below its intrinsic value – avoid investing in new and off-the-plan properties that come at a premium price.
3. Buy a property with a high land-to-asset ratio – but this does not necessarily mean a large plot of land. Well-located apartments have an attributable significant land component under them.
4. Buy in an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area. This will be an area where more owner-occupiers will want to live because of lifestyle choices and one where the locals will be prepared to and can afford to pay a premium price to live because they have higher disposable incomes.
5. Look for a property with a twist – something unique, special, different, or scarce about the property.
6. Buy a property where I can manufacture capital growth through renovations or redevelopment rather than relying on the market to do the heavy lifting.

This approach helps minimise my risks and maximise my upside.

That’s because each strand represents a way of making money from property and combining all 6 is a powerful way of putting the odds in my favour.

If one strand lets me down, I have 4 or 5 others supporting my property’s performance.

When you look at it this way, property investment strategy takes a lot of time, effort, research, and something most investors never attain – perspective.

Tips: This is invaluable in knowing how to invest in real estate – you can gain a lot of knowledge through research but it takes many years to develop the perspective to understand what makes an investment-grade property.

That’s why I recommend employing a property strategist like the wealth specialists at Metropole as your guide.

By the way… this is not a buyer’s agent, even though a buyer’s agent will be involved eventually to purchase the property.

In fact, in today’s challenging environment, it is more important than ever to have more than just a property strategist—a team of advisors who take a holistic approach to your wealth… and that’s what we specialise in at Metropole.

We take a macro view of your needs and will build you a customised, personalised Strategic Property Plan, and then we will help you implement this strategy by coordinating the various consultants including a buyer’s agent.

Here are some common questions we, at Metropole, come across when it comes to choosing a property investment.

Which is best, a house or an apartment?

Over the last few years, houses have outperformed apartments, so many are wondering are apartments still a good investment:

• Capital growth has been stronger for houses than apartments
• Rental growth has been stronger for houses than apartments

But these are big picture “overall” stats – some apartments, especially family-friendly low-rise apartments in lifestyle neighbourhoods have still performed well, while high-rise CBD apartments have performed very poorly with significant vacancies and falling values with few buyers interested in these.

If you can afford a house in a good location, then that’s probably the way to go.

But if your budget doesn’t allow you to buy a house in the right location, I’d rather own a “family-friendly” apartment in a good suburb than a house in the outer suburbs.

I’ve already explained that around 80% of your investment’s performance will be due to its location and about 20% due to owning the right property in that location.

For many investors, apartments or villa units offer an affordable entry point into the property market.

Which is best, an old or a new property?

Just like the houses vs apartments debate, old and new properties each have their own benefits.
Let’s face it, when it comes to buying big-ticket items we all love new, shiny things, but without a doubt, for the majority of investors, established properties will always offer far better capital growth potential than a new build for a whole number of reasons.

So let’s take a look at the benefits of old versus new.

1. Older properties are a better deal. When you buy a new investment property, you’re not only paying for the property, but you’re also handing over a premium to the developer for their profits and marketing costs. Essentially, you are handing your first few years’ worth of capital growth straight to the developer! With established properties, on the other hand, when you buy right, you end up paying below intrinsic value cost.
2. Older properties have a value-add potential: When you buy a new property everything is already done for you and while this might seem appealing, it is actually a huge disadvantage. The problem is you have sacrificed the potential to add value, or “manufacture” capital growth, that comes with an established house or apartment. At Metropole, the ability to add value is one of the primary attributes we look for in an investment property.
3. Older properties have a track record of property price growth: One of the most critical factors when it comes to investing advice in real estate is to know your market. However, a new building doesn’t come with a track record of property price growth to help you make an informed decision when it comes to pricing. And don’t pay too much attention to what other inexperienced investors have already paid to buy into the complex – most will have overpaid and lost out in the long term.
4. Older properties perform better in a slow market: One of the big issues with new, and particularly off-the-plan properties, is that when the market slows, so too does your rate of growth. New apartments and houses are often the first to see prices soften when the overall market loses momentum. Often, though, established homes will either maintain their value or experience a very minimal adjustment.

Note: Investing is really a game of finance so, when it comes to good property investment advice, a sound financial strategy is just as important as a sound investment property strategy.

Without a well-rounded understanding of how to maximise your borrowing power, use equity to buy your investment, build your portfolio and maintain a financial buffer to see you through the difficult times that we all ultimately face, you’re setting yourself up to fail financially.

This will often mean taking an interest-only loan for your properties, because rather than paying the principal back each month (lowering your debt); the extra cash flow could be used to service a bigger debt and support a larger property portfolio.

Step 6: Understand the pros and cons

The next step to get started in property investment in Australia is to have a clear understanding of the pros and cons of why to do it.

Understanding WHY property investing is a safe and proven method for growing your wealth can help make the best financial decisions during the property investment process.

The pros include:

1. Strong historical performance: Residential property outperformed all other investment types, including shares, over the past 20 years.
2. Control: Property is a great investment because you have direct control over the returns from it. One of the major benefits is that you can manage your assets rather than leaving the decisions to a large corporation or fund manager. What this means is you can improve your property or buy a property with a twist that will give you quick capital growth.  If your property is not producing good returns, you can add value through renovations or adding furniture to make it more desirable to tenants. In other words, you can directly influence your return by taking an interest in your property and understanding and meeting the needs of your prospective tenants.
3. Leverage: One of the special things about the property is that banks will lend you up to 80% of the property’s value, enabling you to use other people’s money to buy larger amounts of your investment.
4. Tax advantages: Investment properties offer significant tax advantages including depreciation and the possibility of negative gearing if it is appropriate for you.
5. Security: Residential real estate offers the security of bricks and mortar. This means that houses don’t “go broke” like companies or shares do. This is partly due to the size of the residential market and also the fact that just under two thirds of the people who own properties are owner-occupiers. The residential market is the only investment market that is not dominated by investors, and this provides a built-in safety net.
6. Income: The rental income you receive from your property allows you to borrow and get the benefits of leverage by helping pay the interest on your mortgage.
7. Property is forgiving: Even if you bought the worst property at the worst possible time, chances are it will still go up in value over the next few years. History has proved that real estate is possibly the most forgiving asset over time.  If you are prepared to hold an investment property for over a number of years, it is bound to rise in value.
8. You can insure for many of the risks: Not just building insurance, but smart investors take out landlords’ insurance to protect their interests.

But, of course, property investments are not all rainbows and lollipops, there are some cons associated with investing in real estate, such as:

1. High entry costs: With property prices constantly on the rise, it is becoming increasingly difficult to get into the market. These high entry costs keep many investors out and make it hard to begin if you don’t have a bit of money and savings discipline behind you.
2. Lack of diversification: Because of the high entry cost it is common for beginning investors to have all their eggs in one basket. This lack of diversification is a risk if the market changes suddenly or your investment doesn’t perform the way you expected. Of course, the answer to this is to own the right type of real estate, the type that doesn’t fluctuate in value significantly when the market turns. (I’ll explain this in more detail shortly).
3. Ongoing and additional costs: Investment property carries with it ongoing costs like insurance costs, council rates, mortgage repayments, maintenance, renovations, etc. These expenses may be regular or may come as a surprise when you least expect them. And if you own a high-growth property, it is likely that in the early years, the rental income will not be able to cover your expenses completely. While many investors top up this negative cash flow from their savings, savvy investors set up cash flow buffers in a line of credit or offset account to cover their negative gearing.
4. Tenant problems: Despite engaging the best property managers to look after your property, you can still have tenant problems or periods of rental vacancy, which unless you have the protection of landlord insurance or cash flow buffers can put a dent into your finances.
5. Property is illiquid and lumpy: It takes time to sell and you can’t simply sell off one part of the house and convert it to cash.
6. Surprises: These always seem to creep up on investors – things like changing interest rates or unexpected repairs.

Step 7: Know the risks and how to minimise them

Once you understand the pros and cons, the next step is to become aware of the risks and learn how to minimise them.

1. Market risk

The property market moves in cycles, and at times, there are external factors that cause a market-wide slowdown or downturn.
Investors who focus on a long investment time horizon weather these storms as capital city markets eventually correct and recover.

2. Liquidity risk

Liquidity is the ease with which you gain access to the money you have within an investment.

Note: One disadvantage of real estate investments is the lack of liquidity compared to other types of investments. Your situation may change abruptly due to a change in life circumstances, but you may be stuck with your property for several months or years, depending on the local market cycle and your financial situation/requirements.

Having said that, the lack of liquidity is one of the reasons the housing market is less volatile than the sharemarket.

3. Interest rate risk

A rise in interest rates will affect variable-rate mortgages, meaning the cost of your debt can increase as interest rates climb, putting a strain on your cash flow.
However, it is likely that we are now at the peak of the interest rate cycle and interest rates will eventually start to fall.

4. Buying the wrong property

Most properties are not “investment grade” and if you didn’t do enough due diligence and buy the wrong property in the wrong area at the wrong time, you could face years of slow or no growth or worse, no income due to a high vacancy in the area.

5. Cash flow crunch

If your tenant leaves, you could face a cash flow squeeze for a short while, and if you lose your job, you may be unable to top up your rent to meet your mortgage repayments.

6. Currency risk

Foreign buyers who are investing in property in Australia are also subjecting themselves to currency risk, which is dependent on the movement of the Australian dollar.

7. Legislative risks

There are also sovereign or legislative risks in the property market, as any unfavourable government action can result in investment losses.

A good example of this is the possibility of changing negative gearing rules – which seems to come into discussion each year around budget time – a move that would substantially increase investor confidence.

As you can see, any investment property strategy involves some level of risk.

So, strategic investors must learn how to minimise these risks.

One way of minimising their risk is to have a financial buffer in place (such as having fun in an offset account) for any unexpected investment expenses.

This will allow you to keep their properties well maintained and cope with any unexpected maintenance or vacancies.

All property investors should also consider taking out income protection and life insurance as well as landlord’s insurance to protect their interests.

Of course, this recommendation is based on the fact that one of the most important factors in an investor’s ability to keep growing their property portfolio is their ability to service their loans and use their income to supplement the rental shortfall in the early years.

Note: Without an income, you may not be able to hold on to your properties.

Similarly, if you die, you would need to consider how your spouse would be able to continue holding the investment properties.

Tips: I suggest you make sure they have insurance to sufficiently cover mortgage repayments if the worst should happen.

I’d also recommend that you seek advice from an accountant before purchasing an investment real estate to ensure you buy it in the most tax-effective manner.

Once you’ve bought your investment property you’ll need to arrange an investment property depreciation schedule to ensure you claim the most in deductions.

And no matter your age, it’s wise to consider estate planning because, while we never like to talk about it, it’s essential to plan to look after your family after you’re gone.

This means you should see a solicitor and prepare a will, choose executors, and organise a power of attorney.

Finally, it’s essential to treat your investments like a business and regularly review your portfolio with your property strategist to track its performance, ensure you have the right loans and best interest rates, and assess when you’re ready for your next acquisition.

Step 8: Understand the common expenses real estate investors must pay

The penultimate piece of the puzzle when it comes to learning about how to invest in property is understanding the expenses that come with being a landlord.

Of course, you might be able to tick off all of the above steps, and you may understand what it takes to pick the right property for the best price, but do you understand the financial commitment once it finally becomes yours?

This is where many beginner investors get caught out.

Obviously, topping the list of the most common property expenses for investors is loan repayments, the amount of which varies depending on the borrowed amount, loan type, loan term, and loan service fees.

And, as you continue to hold and maintain your investment property, you may also need to pay for land tax and council rates, which vary by government area.

For apartments and townhouses, there are also body corporate fees paid quarterly to assist in their upkeep.

Building and landlord insurance are a must in limiting the financial impact of unforeseen circumstances, like sudden damage costs and tenant-related liabilities.

Other fees to take into account include property management fees, advertising for new tenants, and repair and maintenance costs.

So, how much should you budget for repairs and maintenance?

One of the most difficult aspects of property management is anticipating the costs of maintenance and repairs.
They can occur at any time, plus the expenses vary greatly depending on the age of the building, the nature of the repair, and any insurance policies in place.

Furthermore, sometimes these costs are not tax-deductible.

Repairing an item – such as a cupboard door – is tax-deductible.

However, improving the same item – such as replacing all cupboard doors with a newer, more modern style – is considered a renovation, which is not immediately deductible.

Tips: To create a budget for repairs and maintenance, it’s a good idea to estimate how much it might take to replace the ‘big ticket’ items throughout the property, such as dishwashers, hot water systems, and carpets.

Determine their current age and life expectancy.

Based on those figures, calculate the remaining life expectancy of the item.

Rank all the items in order of increasing estimated remaining life expectancy, and plan accordingly for these anticipated expenses in the next five years.

What about the tax breaks?

One of the biggest reasons why investment property remains popular in Australia is the whole raft of tax benefits available.
Now, my advice is that you shouldn’t invest solely for tax benefits, but they’re a nice little bonus that makes keeping your property easier.

Things like claiming legitimate business expenses of running your investment business as well as negative gearing, which allows investors to offset any shortfall between the rent that you collect from your property and the expenses that you pay for it against your other income.

However, if you sell a property at a profit, you’ll need to pay capital gains, but even this has adjustments, as you can currently benefit from a 50% discount on capital gains for a property that you’ve held for longer than 12 months.

Property management also comes with a fee

Renting out your property allows you to earn an income from your investment, but you really need to employ a proficient property manager so that your investment property is well-maintained and continuously tenanted.

Your property manager is responsible for a number of things, such as advertising your property, receiving enquiries during the leasing process, and screening and selecting tenants. They also help to make sure that your property is maintained, with repairs and updates performed as needed.

Most importantly, as your property manager is responsible for collecting rent, they follow a clear process in accordance with the law.

Aside from the initial fees that you need to pay when buying an investment real estate, you also have ongoing costs like council and water rates, insurance, body corporate fees, land tax, property management fees, and maintenance and repair costs.

These expenses are usually tax-deductible.

When it comes to insurance, you must not only take out building insurance, but you should also consider landlord insurance because this will protect you if a tenant damages the property or leaves without paying rent.

Repair and maintenance costs should also be factored into your budget.

Should you manage your property yourself to save money?

Sure, you can eliminate property management costs if you choose to manage your investment property yourself, but in my mind, this is a sure way to disaster.

Property managers can set the right market rental rates and collect rent payments on time.

They can also advertise your property astutely to avoid long vacancies.

When it comes to tenants, property managers can screen them and manage all aspects of the landlord-tenant relationship.

They also often have connections with contractors, suppliers, and maintenance workers, if ever you need one.

Property managers are also knowledgeable about housing regulations and property laws, so you can be sure that your properties are always complying with them.

Step 9: Understand how NOT to invest in property

While this isn’t technically a property investment for beginners ‘step’, this step-by-step list wouldn’t be complete without it.
While the above points will help set you on the right path, teach you what to look for and how to pick the right property, understanding what NOT to do is equally important.

Here are 10 of the most common property investment mistakes beginners make, and some tips on how you can overcome them in order to win big with real estate.

1. Listening to your heart over Head

When buying a home, about 90% of your purchasing decision will be based on emotion and only 10% on logic.
This is understandable, as your home is where you’ll raise a family – it’s your sanctuary.

When it comes to investing, however, letting your heart rule your buying decision is a common trap that must be avoided at all costs.

Allowing your emotions to cloud your judgement means you are more likely to over-capitalise on your purchase rather than negotiate the best possible price and outcome for your investment goals.

Beginning property investors should always buy the property based on analytical research.

What are the local demographics? Will this lead to the capital gains and returns you require?

Is it the best location to attract quality tenants? That’s tenants who can afford to pay you increasing rent over the years rather than those who are only a week away from being broke.

Will it appeal to the owner-occupier market that sustains property prices in the long term?

By answering questions like this, rather than buying a house because you loved the curtains or thought it would make a good holiday retreat, you’re thinking based on financial gain rather than personal feelings.

And at the end of the day, investing is all about economics, demographics, and finance and not emotions.

2. Failing to plan

It’s an old adage but very true: “Failing to plan is a plan to fail.”

The key aim of most beginning property investors is to build a lucrative property portfolio.

One that will one day give them financial freedom and choices in life.

However, doing so without a plan of attack is like setting out on a road trip without a map…you’ll inevitably take a wrong turn and end up lost!

You see…attaining wealth doesn’t just happen, it’s the result of a well-executed plan.

In reality, planning is bringing the future into the present so you can do something about it now!

Successful wealth creation through real estate requires you to set goals, determine where you want to end up, and then devise a cohesive plan to get there.

You need to focus on both the short and long term and ensure your investment decisions gel with your overall strategy.

Work out what you want to achieve with regard to income – are you chasing short-term yields or long-term capital growth – and how you can best manage your cash flow as a smart investor.

What type of property do you need to buy in order to meet your income goals?

With a carefully thought-through outline of your investment journey, you will end up exactly where you want to be.

So plan your action and then activate your plan.

3. Diving in or dithering

Two of the most common traits of budding real estate investors who never make it beyond their first property (or sometimes never even make it to their first!), are either acting too impulsively or being overly cautious and never acting at all.
The first is being in too much of a hurry.

They think they have to have it all yesterday.

They attend one webinar or buy into the first crazy scheme they’re sold without thinking it through, and when it doesn’t make them rich overnight, they lose heart and throw in the towel, saying property just isn’t for them.

The second group is procrastinators, who are their own worst enemies.

They watch all the webinars, read all the books, listen to all the property podcasts, and watch all the videos, only to end up overloaded with information and unable to act.

We call this paralysis by analysis.

While the former can sometimes learn from their mistakes and make a success of their investment endeavours, the latter will never overcome their fears.

The best you can do is find a happy medium – sure, learn as much as possible to make you comfortable with your investment decisions, but don’t think you can ever know it all before you begin.

You will always have something else to learn and the best way to gain knowledge is to immerse yourself in the game itself.

4. Speculation over patience

I’ve found many beginning property investors are hoping to become overnight millionaires.
They think the property will be a quick fix to their financial problems, but the truth is seeking short-term gains in real estate is more about speculation than strategic investing.

In fact, it takes most property investors 20-30 years to build a safe, sufficiently large asset base to give them substantial financial freedom.

In other words, it’s not as easy as buying a property or two and living off the cash flow.

And there’s definitely no money in buying real estate and flipping it to make short-term profits. After all, most property flips flop.

It takes time to sell real estate, and there are numerous costs involved, including capital gains tax.

Where some might see this as a shortcoming, I see it as a strength; because the property is a proven commodity that we all need, it has the tried and tested ability to provide steady, long-term gains through the power of compounding.

In other words, you use the gains you make from one property to leverage into another property, and then with the combined gains you make from those two properties, you buy more to add to your portfolio.

Better still, you can use other people’s money (borrowed from the banks) to do so.

No other commodity gives you the ability to do this so successfully.

By approaching property investment with patience and persistence, you will gain far more success (and wealth) than if you seek out the “next big thing”.

Securing proven, high-performing property that grows consistently over the long term is the only way to ensure you make it to the top of the property ladder.

5. Not doing your homework

Understanding property markets takes time.
And getting to grips with the cyclical nature of real estate is something that even eludes many experts.

So don’t think you can attend a seminar or two, or read a couple of books and have a handle on exactly what to buy.

Sure you can research an area on the internet or go to 100 open for inspections.

The problem is what is lacking in perspective and that’s something money can’t buy.

The trouble is most beginning investors get this step wrong because there’s a big difference between knowing your local neighbourhood and understanding the investment fundamentals of your property market.

That’s why more and more property investors and homebuyers are turning to the independent team of property strategists and buyers agents at Metropole to help level the playing field for them.

6. Buying the wrong property

This is one of the biggest investment blunders of all!
Firstly, you’ll need to choose the right investment location, one that will outperform the averages because it is going through gentrification, or because it is where affluent owner-occupiers want to buy.

Then, you’ll need to buy an investment-grade property – one that will remain in continuous strong demand by owner-occupiers and tenants in the future.

With close to 11 million properties around Australia, less than 4% of those currently on the market are what I would call “investment grade.”

7. Poor cash flow management

It’s easy to fall into the trap of poor cash flow management as a beginning property investor.
Understanding all of the costs involved in acquiring and holding property can be difficult and you should always seek the advice of a professional accountant who knows about real estate investment to ensure you know exactly what you’re getting into financially.

You also need to make sure that you can afford to hold onto any property you buy.

In other words, how much income will your investment(s) generate, and will it be enough to cover your outgoings?

If not, can you manage any shortfall?

Don’t forget to account for any contingencies, such as extended vacancy periods or unexpected maintenance costs.

A good rule of thumb is to allow about 10% of the property’s value for costs such as rates, land taxes, insurance, maintenance, and management fees.

Examine each potential investment analytically and ensure you make adequate allowances.

By underestimating your income and overestimating your expenses you’re more likely to avoid any nasty surprises.

8. Financing faux pars

As you progress through your property journey you’ll realise that real estate investing is a game of finance with some houses thrown in the middle.
So the best advice I can give any beginning property investor when it comes to financing your property investments is to seek help from a qualified, professional finance broker.

Going it alone can be daunting and time-consuming and obtaining the correct finance can save you thousands in the long run.

Setting up an incorrect financial structure can be just as detrimental to your investment endeavours as selecting the wrong property type.

There are numerous considerations to make here and a good broker who understands investment will be able to guide you in the right direction.

9. Being less than thorough

So you’ve found the right property, and you’re ready to make a move.

Have you really done every little bit of research into the investment?

Do you know why the vendor is selling?

Knowing the vendor’s motivation can make a big difference when it comes to negotiating a good price.

During the initial inspection look for clues as to the vendor’s personal situation; are they going through a divorce for instance?

While it might sound a little callous, this allows you to buy a bargain, as well as giving the seller a chance to move on with their lives.

Have you had the relevant inspections done to uncover any structural defects or signs of pest infestations, like termites?

The fees for these are tax-deductible and paying say $800 for this type of peace of mind can save you thousands in the long term.

Finally, is the property liveable from a tenant’s perspective?

Remember, while you won’t be living here, someone else will, and they’ll be paying you to do so.

Ask yourself, is the floor plan appealing, and will the property provide a comfortable, practical home?

Always do a second and third inspection at different times of the day.

Is it noisy during peak hours? How does light work at different times? Are the neighbours party animals or quiet?

Ticking all of the right boxes when you inspect a property will ensure you buy the best possible investment every time.

10. Saving by self-managing

Many investors think about self-managing their portfolio; that is finding their own tenants and acting as their own property managers by organising the collection of rents, maintenance, etc will save them a packet and give them greater profit.

Wrong!

In the short term, this might seem plausible enough, but what happens when you have a portfolio of say twenty properties?

The ongoing management of such a portfolio essentially amounts to a full-time job!

You have to find and qualify suitable tenants, know the laws pertaining to renting, have a firm grip on the value of your rental, conduct regular inspections to ensure your tenants are looking after your asset, collect the rent, represent yourself at tribunal should things go awry, deal with all the maintenance issues that crop up and be on call 24/7 for your tenants.

Sounds appealing? I didn’t think so.

Paying a professional property manager to handle all of these things on your behalf will not only mean you get the best outcome for your rental property in terms of a good tenant and the best possible returns, but it will also give you something just as valuable as money when it comes to investing – time.

All of that time spent managing your properties could be put to far better use…finding more investments to add to your portfolio and generating even greater wealth.

Now we’ve gone through what NOT to do when property investing is in some detail, let’s look at what to look out for.

Is it too late? Have I missed the boat?

The simple answer is NO, it’s not too late.

Of course, it would have been nice to buy a property 10, 15, or 20 years ago.

And yes it would have been great to buy a property in early 2020 when most people sat on the sidelines waiting to see what would happen in the market.

Remember that there is not one “Australian property market”, and even within each state, there are multiple markets divided by geography, type of property, price point, etc.

Note: Property investment is a process – not an event.

That means to become a successful property investor you can’t just go out and buy any property. It should be part of a long-term Strategic Property Plan.

It should come as no surprise that getting a good team around you will be an important investment and not an expense and should allow you to build a property portfolio that will go a long way to replacing their income in the future.

At the same time, you must learn that property investing is not a get-rich-quick scheme and to achieve your future financial goals you will have to slowly build a substantial asset base and not chase short-term cash flow as many beginning investors do.

Here’s a wrap up of tips we’ve covered for how to invest in property:

1. Formulate a plan: Understand your end goals – what you want to achieve – and then make investment decisions accordingly.
2. Be cautious: You’ll find everyone is happy to give you advice. Rather than listening to well-meaning friends, it’s important to only listen to people who have achieved the financial independence you’re looking for and who’ve maintained it through a number of property cycles.
3. Understand the difference: Between a salesperson and an advisor. Many salespeople are cloaked as advisors and while they suggest they’re representing you, in fact, they are representing the seller or a property developer. Only take advice from someone who is independent and unbiased rather than someone who is trying to sell you something.
4. Be prepared to pay for advice: I’ve found that good advice is never expensive. In fact, it’s much cheaper than learning from your property investment mistakes.
5. Not everything that glitters is gold: Often when you start out it can be tempting to see opportunities everywhere. The problem is you don’t yet have the perspective to decide what is a good investment and what is not.

Remember, the property doesn’t discriminate; it doesn’t care who owns it.

The residential property market is worth well over seven trillion dollars today and over the next decade, it will increase in value by billions and billions of dollars.

If you get it right, you can have your share.

About Michael Yardney
Michael is the founder of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He’s once again been voted Australia’s leading property investment adviser and one of Australia’s 50 most influential Thought Leaders. His opinions are regularly featured in the media.