Home' API Magazine : November 2014 Contents 146 n APIMAGAZINE.COM.AU n NOVEMBER 2014
TREVOR, A CLIENT, RECENTLY ASKED ME “WHAT’S THE SECRET TO
successful property investing? What did you do differently to the
average investor to build your wealth?”
I think I disappointed him when I told him that there’s no real
secret! Successful investors just follow a system that’s rooted
in the real world and has stood the test of time across many
changing markets. But when Trevor asked for more details I happily
explained my strategy.
nMY TOP DOWN APPROACH
The property investment system that’s helped me build a very
substantial property portfolio uses what I call a top down approach.
f It starts with buying at the right stage of the economic cycle. I
look at the big picture – how the economy is performing and where
we are in the economic cycle.
f Then I look for the right state in which to invest.
While I don’t try and time the property cycle, I don’t
want to buy near or just after the market peak.
f I find the right suburbs within that state – ones
that have had a long history of outperforming the
averages and are likely to continue to do so in the
future because of their demographics. I’ve found
some suburbs have 50 to 100 per cent more capital
growth than others over a 10-year period. Obviously
those are the suburbs I target.
These are areas where more homebuyers want to
live because of lifestyle choices and are locations
where the locals are prepared to, and can afford to,
pay a premium price to live because they have high
disposal incomes. This is different to the speculative approach
some investors adopt. They say things like, “Oh, this suburb
hasn’t had much capital growth, maybe its time has now come”,
or “That’s a brand-new suburb. They’re getting a train line down
there so it must grow in value.”
f I then look for the right location within those suburbs. Think
about the suburb where you live – there would be areas you’d
happily live in and areas you’d avoid, like on main roads or too
close to shops, schools or commercial areas.
f Next I source the right property, using my Five Stranded Strategic
Approach that I’ll explain in a moment. And finally I look for...
f The right price. I’m not looking for a ‘cheap’ property as there will
always be cheap properties in secondary locations. Instead I look
for the right property at a good price.
I choose my properties in that order, going from the macro to the
micro, which leads some people to ask why price is at the bottom
of the list. The fact is you make your money when you buy your
property not because you got a bargain, but because you bought the
right property, one that will be in continuing strong demand by both
owner-occupiers (who push up property values) and tenants (who
will help you pay off your mortgage).
To ensure I buy a property that will outperform the market averages
I use my Five Stranded Strategic Approach, which means I buy:
f 1. A property that will appeal to owner-occupiers because they’re
the ones that push up property values.
f 2. Below its intrinsic value – that’s why I avoid new and off the
plan properties, which come at a premium price.
f 3. In an area that has a long history of strong capital growth and
which will continue to outperform the averages.
f 4. I look for a property with a twist – something unique, special,
different or scarce about the property; and finally
f 5. A property where I can manufacture capital growth through
refurbishment, renovations or redevelopment.
By using a strategic approach I minimise my risks and maximise
my upside. Each strand represents a way of making money from
property and combining all five is a powerful way of putting the odds
in my favour. If one strand lets me down, I have three or four others
supporting my property’s performance.
nHOW I CONDUCT MY RESEARCH
Trevor also asked how I conduct my research and probably thought
I’d quote the various online research portals, but while these are great
resources, that’s not the answer I gave.
Think about it. Most research data tells us what’s happened in the
past, but what I’m looking for are leading indicators. I want potential
predictors of what will happen in the future. So I pay attention
to things like economic forecasts, population growth, consumer
confidence, employment growth and finance approval trends. But
more importantly I recognise that the destiny of our property
markets will be determined by two main factors:
f Demographics – how many of us there will be, where we want to
live and how we will want to live; and
f The wealth of our nation. I look for suburbs where people are
able to pay a premium to live because their disposable income is
growing above average. Then I get to know the real estate markets
in those areas by analysing market trends – supply, demand,
auction clearance rates, vendors’ asking prices, etc. And most
importantly I inspect lots of properties and track their sales results.
There’s really no secret to successful property investing at all. API
THE SECRET TO
“I’m not looking for a ‘cheap’
property as there will always be
cheap properties in secondary
locations. Instead I look for the
right property at a good price.”
n MICHAEL YARDNEY is the director of Metropole Property Investment Strategists,
www.metropole.com.au. His books are available from www.businessmall.com.au
INVESTOR PSYCHOLOGY n Michael Yardney
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