6 Key Factors That MUST Drive Your Real Estate Decisions

Lately, a few fellow investors have approached us to review their portfolio positions. As much as we love looking at deals, it’s painful to see some of the decisions made in the purchasing. Why is it that some investors build amazing portfolios, yet others succumb to outside pressures from people who may not have their best interest at heart? I believe it comes down to the following SIX factors:

1. Self-belief. Deciding that only you are in charge of your financial destiny. Although you may hire others to help make you your decisions, you must always have your finger on the pulse. Never outsource your decisions so much so you get the tougher end of the deal with poor investments
2. Ability to build rapport and networks. You can never go wrong with knowing too many real estate agents. Be authentic and get to know them as real people. Once you’re a proven buyer, you are likely to be on an agent’s speed dial list as opposed to someone who can’t make a decision for the last year and has gone to every open home!
3. Following the herd. Why would you buy a brand new property when you could buy one, a little older at a discount and hence with a better chance of capital growth? Buildings depreciate, land appreciates. Is there an oversupply in the area? Are you buying something just for the sake of buying even though the given area may have no prospects for growth because no one, not government, not private investors and definitely not commercial investors are pumping money into the area? What are the growth drivers in the area?
4. Property investing is a business. Knowing how to do your cash flows (i.e. numbers) is pivotal. It requires a handy spreadsheet that takes in all your initial outlay costs (deposit, stamp duty, building & pest / strata inspections and solicitors fee), current value & equity position at a given point in time. What’s the rent that you’d be getting less what costs would be involved in holding the property (interest paid, council rates, water rates, property managers’ fee, and insurance / strata costs). Your spreadsheet should be able to reveal the net cash position for a property on a weekly, monthly and yearly basis. From this cash flow position, your decision should be straight forward, provided the property already ticks other boxes for you i.e. asset type, location, rental return. Would you buy a property that costs you $10,000 to hold per annum? Unless the property had significant upside like development potential, why would you bother holding something like that? And why would you hold something that may cost you $10,000 x 5 years or 10 years when the markets aren’t going anywhere? It comes down to your income. The higher your income the greater your ability to hold negatively geared property. However it could also mean, inability to grow your portfolio and maximise exposure to the market!
5. Tax should not be a driver. Tax can be used to minimise holding costs. It can be an icing on the cake to facilitate you in holding a good asset. A lot of people believe that property investing is about tax savings. It isn’t. Property investment is about capital growth and capital growth is what makes one wealthy. Why would you pay $1 to get 30 cents back from the tax man? You are still in a 70 cents deficit!
6. Go with your gut! Follow your intuition, if a property sits well with you or if it doesn’t. Walk away from anything that doesn’t feel right for you / your portfolio. Best decisions are the fastest decisions that we make and rarely regret.

All the best with your investing goals!

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