• Articles, blogs and videos to help you with your home loan decision

  • By Chris Gray 10 April 2012

    Climbing the property ladder

    Property and renovations can be for anyone; it all comes down to your goals and dreams and how much you want them. Climbing the property ladder 300x200

    When you're starting out and have limited financials it is tough but the sooner you get on the ladder, the sooner your equity grows and you can start duplicating. 

    Caution: the quicker you try and double your money, the sooner you're likely to fall over, slow and steady is the key to winning the race. 

    1. "Don't fear the gear" is one of my mantras 

    Most people are afraid of debt and leverage, as they perceive it as dangerous. However, debt can increase your return and shorten the time it takes to get the return. 

    Debt does increase your risk during a downturn, so every investor needs to do know how much debt they are comfortable carrying.

    2. Go against the grain

    95% of the population retires poor. If your goal is to retire wealthy then you need to do the opposite of what everyone else is doing. Good investors buy when everyone else sells and sell when everyone else is buying. 

    Yes, it can be difficult to maintain your confidence when everyone tells you you're doing the wrong thing at the wrong time, so you need to develop your mind to block negative comments, which can come from friends, relatives and the media.

    3. Stick to your strategy

    Every investor should have their own strategy that reflects their circumstances and adversity to risk. Figure out what works for you and, once you've found your strategy, stick with it.  

    Be aware of other opportunities and get other advice, but often these can be distractions. A good strategy doesn't have to be complicated – it's often the simple things that work.

    4. Time in the market

    The real secret to wealth is compounding your investments. You need to change your mindset from trying to be a millionaire overnight to aiming for consistency.   This can be very frustrating when you first start out, as your wealth won't increase much. But over time you will see your portfolio increase in value.

    5. Timing the market

    Many people wait until the market is at a low before buying. If you buy good stock and hold onto it for ten years or more, you should see some great capital gains, regardless of market ups and downs.

    6. Buy blue chip

    It's worth paying market value for a good property in a top suburb rather than a property that is low priced because nobody really wants it. 

    Blue chip properties tend to steadily grow in value over the years, so if you buy and hold on to the property you can then build up equity, borrow against the property and build up your portfolio. Blue chip properties typically grow between 6 – 10 per cent in the long term.

    7. If possible, never sell 

    Most people think that you need to sell to realise a gain, but that's not the case. Property is a long-term investment. My strategy is to hold onto properties and refinance in order to benefit from the equity increase. The goal is to get your properties working for you to create passive wealth.

    8. Create a two-sided buffer

    Side 1: Refinance your property to create a buffer. Refinancing when your property grows in value will create an emergency 'buffer' zone. This will ensure that you can continue to make mortgage repayments even if your circumstances change.

    Side 2: Keep part of the equity aside as a buffer. This is like an emergency fund for if things go wrong or for when interest rates rise. When everyone else panics as rates rise, some people will choose to sell, and if you're cashed up, there's an opportunity to get a great property at a reasonable price.

    9. Choose the right property

    Focus on purchasing "cosmetically tired" rather than "structurally tired" properties. Structural work is often where problems occur and budgets blow out.  

    Some of the most efficient and simple ways to renovate a cosmetically tired home include painting, carpeting, polishing floorboards, converting a garage into bedroom, styling, replacing kitchen doors, re-enameling tiles and the bath, replacing fittings.

    10. Renovate wisely

    You need to understand who is likely to buy your property and what they want. You also need to know what other homes are on the market, what condition they're in and what features they offer compared to yours. 

    If you're selling a property much of the sale price will come down to the cosmetics such as painting, carpeting and styling. I've seen some of the worst properties styled well and sell for a premium compared to better properties that haven't been styled and sell at a lower price.

    11. Make sure is lettable

    To ensure it is tenanted you should buy a property that the majority of working professionals could afford to rent, in an area where they want to live: that is, within 5-15 kilometres of the city. 

    Based on median prices and current rental yields, I would buy a unit in high-density cities like Sydney or Melbourne, while in a lower density city such as Brisbane or Perth, I would buy a house. This should get you the best yields and growth over the long term.

    12. Invest in professional expertise

    You need professional help with your first investment (and, I believe, every investment thereafter) because you are spending large amounts of money. 

    You've got to treat this outlay like you would any other business and pay for expert assistance. Every investor should engage with a good accountant,  financial advisor, valuer, building inspector and buyers' agent.

    13. Don't retire on property rents

    Most people think you've got to pay property off as quickly as possible and then retire on rents. 

    But often it's the capital growth that makes the real money. Change your mindset and be less emotional about it - look at the numbers and make your decisions based on that.

     
    The information here is of a general nature only and is not intended to constitute financial or tax advice. You should consult your professional adviser, accountant or taxation expert for advice specific to your personal circumstances.

    The taxation position described is a general statement and should only be used as a guide.  It does not constitute tax advice and is based on current tax laws and their interpretation.  

    Credit criteria, fees and charges apply to RAMS home loans.