Why every first-time investment property buyer needs a property investment strategy
Success in property investment doesn’t happen by chance. You might make a few good decisions that lead to positive outcomes. But if those decisions aren’t part of a broader property investment strategy, you’re leaving the door open for poor investment performance to creep in.
A long term property investment strategy considers your property investment goals, your risk appetite and your financial position. Armed with this strategic approach, you can invest with confidence, knowing you’re making good investment choices.
As a first-time investment property buyer, taking the time to plan your strategy now can save you a world of headaches in the long run. I explain why strategy is so important and the components you need to consider in yours.
The risks of not having a strategy
Think you can wing it? Or focus your strategy on making money? Over the last two decades I’ve seen this style of ‘strategy’ time and time again. It never ends well for the investor. And even if the investor still makes money, they certainly don’t make as much as they could if they had a strategic approach.
Without a property investment strategy you’re taking unnecessary risks with your money. Below are some of the risks you might encounter.
Investing without a long-term strategy often leads to emotional decision-making. That can look like buying a property that looks appealing or is in a trendy neighbourhood and then finding out that the location has poor long-term growth prospects. Strategy helps to remove the emotion from the equation to make more effective decisions.
Lack of diversification
First-time investors are often tempted to put all their eggs in one ‘safer’ basket. But this can expose them to higher risks and pitfalls. For example, you buy a residential property in one area that performs well so you decide to invest in similar properties in the same area. If that area sees a downturn, your entire investment suffers.
Unsustainable debt levels
Without a strategy, it's easy to over-leverage yourself, accumulating debt that may be unsustainable in the long run. A big part of what I do with my clients in developing their strategy is to understand their financial position. We can then work up to a multiple property investment strategy – if that’s one of their goals – once their financial position is under control.
Why strategy is essential
Property investment strategy is not about learning how to buy five properties in five years. Strategy is the path you follow to grow your wealth to where you want and need it to be.
Below are some of the benefits of developing a strategy for property investment.
Long-term planning helps you diversify your investments across different types of properties and geographic locations, spreading the risk. You also minimise the risk of making poor choices by focusing on property assets that fit within your strategy. If you’re focusing on a commercial property investment strategy or rental property investment strategy you can also build in specific risk mitigation steps to protect your investments.
With a long-term perspective, you can take advantage of compounding growth and build significant wealth over time. Your strategy would include KPI measures that are reviewed regularly so you can continue with confidence and track the progress of your portfolio.
Market cycles and timing
Real estate markets have their ups and downs. A long-term strategy allows you to ride out market volatilities. A property investment strategy isn’t a static thing and can also be tweaked and changed with the market to ensure you stay on track.
There are a number of tax benefits of an investment property. Your property investment strategy will help you take advantage of these benefits in the context of your financial position and future plans. Tax planning for investment properties isn’t a one-size-fits-all approach and your strategy will reflect this.
Many would-be first time investors don’t proceed with purchasing a property out of fear. But the longer you hold off on purchasing out of fear, the more money you’ll stand to lose in the long term. Expertise and strategy can offset your nerves and fears by giving you a clear path forward. You’ll have a plan that gives you certainty about the future and the confidence to invest today.
Components of a successful property investment strategy
If you’re developing a real estate investment strategy for passive income, it will look very different to a legacy-building wealth strategy. At the end of the day, your strategy is the sum of your financial position and your goals of where you want to take it.
Having said that, there are some common elements that you’ll find in any well-developed property investment strategy.
Research and due diligence
Comprehensive research is the foundation of your strategy. You need to understand things like market trends, past performance and growth indicators in order to determine the best path forward.
When you work with an accredited property investment advisor like me, you’ll have more access to data and research than the average person. I can tap into data around recent yields, location population and demographics and profiles for individual properties. This adds an unparalleled level of robustness to your strategy.
Budgeting and financing
The sky’s the limit for property investment… but only if you have the budget to match. Your strategy starts with giving your certainty and stability in your financial position so you have a solid foundation on which to invest.
If you have plans to invest in more than one property as you grow your wealth, diversification will be an important element of your strategy.
This is where you really put your research and budget to work, planning for the future and piecing your portfolio together, one strategic step at a time.
Regular reviews and adjustments
Markets change, and so should your property investment strategy. Conduct regular reviews to ensure your investments and plans still align with your financial goals. This is your future wealth so you need to guard it appropriately.
Start building your strategy today
With more than two decades of experience in the industry, I know how to craft property investment strategies that deliver returns. For a single, one-off fee, I guide my clients through every step of the process, from defining your goals to executing your strategy.
In line with your strategy, I’ll research and find the properties that will help you achieve your financial goals and hold your hand through the buying stage and beyond. It’s the faster, smarter way to grow your wealth; putting money in your pocket without you having to lift a finger.
Book a wealth accelerator call so we can start building your strategy for a wealthier future.
The information in this article is general in nature and does not constitute financial advice. You should seek independent legal, financial, taxation or other advice for your own unique circumstances.