When it comes to property investing as the saying goes, if you don’t have a plan, then you could be planning to fail! While there are many factors we can’t control in the market, there are certain facets we can manage to give us the best possible chance of success. In this article we will help you understand the 7 plans every property investor must know.

Starting out in property investment can be overwhelming, and most Australians don’t even embark on the journey because they simply think it is out of reach. Even the most successful property investors will tell you that they are not experts in all things accounting, tax minimisation and property management. The key to building a thriving property portfolio is to plan and do it well. With that being said, here are the 7 plans every property investor must know to go the distance and win at real estate.

THE THREE PHASES OF PROPERTY INVESTMENT 

First though, here’s a broad overview of what a standard investor journey throughout the years looks like.

There are three phases when it comes to building a property portfolio that every investor must navigate. Real estate is a long-term investment strategy and the course of these phases usually spans a 15-20 year period.

Acquisition phase

The acquisition phase is when an investor should be in growth mode. It is generally the stage between three to seven investment properties. Your main goal will be to acquire as many properties as possible in a safe and sensible manner.

During the acquisition stage, you want to be focusing on high growth properties in a variety of locations in order to make the most out of your equity gains. To do this, you will need to understand what drives the market.

Consolidation phase

When you get to the stage where the banks won’t lend you anymore money, you’ll need to begin refining your investment portfolio. In order to secure more lending you will need to reduce your debt and simultaneously increase your income. To move into a positive cash flow phase, you will need to lower the loan-to-value (LVR) ratio of your portfolio. What this means is that you’ll need to reduce the amount of debt you have. You can do this through selling non-performing properties, renovating to add value or reducing the rate at which you purchase properties.

Lifestyle phase

This is the point in your journey where you can truly start benefiting from all your hard work as an investor. Your property portfolio will be at a point where it is generating enough income for you to retire (whatever that looks like for you).

Once you get to the stage where you’re living off the income produced from your assets, you might like to consider a more conversative approach to investing, in order to protect your assets.

THE 7 PLANS EVERY PROPERTY INVESTOR MUST KNOW 

These are the 7 plans every property investor must know if they want to create legacy wealth through real estate. If you’re asking yourself how do I make a property investment plan? You’ve come to the right place.

Acquisition plan

Having a plan that outlines how you are going to grow your property portfolio will be integral to your success. When creating your acquisition plan, the key thing to remember is that you want to grow as fast as possible. Some investors believe that when the market is flat they should stop and wait for another boom. This couldn’t be more wrong. Property is a long-term investment so it doesn’t really matter when you buy in the market cycle, just as long as you get in it.

With new investors, common flawed thinking is to find a market that suits your budget. If your budget doesn’t quite reach the average house price in sought-after areas, then you may start looking as far out of the city as possible in a location with very little prospect for growth.

However, if you want to build lasting wealth then you must focus on high growth properties and in order to do this, you need to understand what drives the market:

• Infrastructure – spending on infrastructure points to a growing economic base
• Yield variation – signals growth
• Supply and demand – indicates need in the marketplace
• Population – fuels growth in an area
• Economics – reveals clues to an area’s capacity for growth
• Demographics – influences growth – as incomes grow, so do property values

Each of these factors will help you identify where you should be investing. As mentioned, you need your money in strong future-proofed economies. For example, in larger cities, you are more likely to achieve consistent capital growth. This is because property prices in cities tend to recover more quickly from economic downturns. Cities also have diversified economies which means there is always going to be jobs which bring people to the area. This will keep demand for housing resilient, making it easier for you to find a tenant.

Once you’ve found a location, the next step is to find a good property. Any successful property investor will tell you that money is made at the time of purchase. This is why you’ll have to learn the art of negotiation.

Of course the market generally dictates what kind of discount you may be able to secure, if the market cycle is at the bottom then you’ve got a great chance of getting a discount – more so than when it’s strong. Here are some proven tips and strategies designed to help you tilt the odds in your favour:

• Speak with authority: those that are well informed make better decisions. This is especially true when it comes to making an offer on a property. By doing proper due diligence, you’ll have more confidence and this will be reflected in the negotiations.

• Listen closely: It’s helpful to understand human nature when negotiating, so it’s worth the effort to learn how to identify both verbal and nonverbal cues that may reveal hidden information.

• Silence is your friend: During negotiations, moments of silence can be unnerving to some individuals. Use this to your advantage. For example, if you’ve received an offer that doesn’t meet your expectations, pause before responding, you might be surprised at what happens next!

Lending plan

In order to conduct business safely during the acquisition stage of your property investing journey, you need to create a lending plan. This plan will detail how you are going to get the funds to finance your purchases.

When it comes to securing lending, a common mistake that many new investors make is that they limit their buying options by only looking at lenders that offer cheap interest rates. What these investors fail to understand is the value in building a portfolio of good properties in growing locations right now.

For example, you could approach a major lender (big banks) and get approved for a $600k loan with a 3.5% interest rate. Depending on the area, lets just say you’re able to purchase 45 minutes out from the city in a small suburb with no prospect for growth. In comparison, if your lending plan allows you to consider second-tier lenders that may offer you $750k at a 5% interest rate you’ll be in a much better position to purchase in a growing economy (closer to the city). Whilst your finance costs more, you will likely make more money through capital growth down the track.

For most investors, their lending plans will have a provision for securing finance from second-tier lenders, because even if the major banks have a cheaper interest rate, their terms are often restrictive. A second-tier lender is a non-bank entity, making them exempt from some of the more rigorous APRA requirements. This doesn’t mean they’re free to do as they please, you can have peace of mind knowing that they are regulated by the Australian Securities and Investments Commission (ASIC). The goal of the ASIC is to protect investors like yourself while enforcing Australian finance law.

Having access to funding is super important when it comes to property investing, and having the cheapest interest rate should be the last thing you consider.

Tax management plan

Owning real estate can actually be incredibly tax effective. When it comes to property investing there are a lot of things that you can’t control such as the market, interest rates, and yields. However one thing you can control is your tax – through managing it.

There are four main taxes that property investors pay:

• PAYG
• Land tax
• Stamp duty
• Capital gains tax

And if a company owns your property portfolio then you will also need to be across goods and services tax (GST) and company taxes.

For many investors, tax breaks make it affordable to own an investment property in the first place. So when it comes to managing your taxes you need to ensure you’re across it. This does not mean you need to understand tax law in depth, but having a basic understanding will help you (and your accountant) in the long run.

A smart investor will have provision in their tax management plan for how they can use tax to pay for their properties. Let’s say you purchase a property for $500k, the rental return is $500 per week and the property expenses are $601 a week. So your property is making a loss, and the great benefit of being a property investor is that you can claim tax back and get depreciation. So on this brand new $500k property you can claim back $152 per week. With a PAYG withholding variation, you can receive the $152 tax break each time you’re paid.

Property management plan

Every investor knows that real estate is a long term game. In order to keep your properties in tip-top condition over this time, you need to invest in an amazing property management company right from the start – at the beginning of the acquisition phase.

Your property manager will spend more time at your property (your biggest asset) than you and therefore you want to ensure you have the right team on your side looking after your properties.

Let’s say you get dumped with an inexperienced property investor, they do an average job of looking after your property, it gets ruined by your tenants and you become fed up. Your property management company refers you to a real estate agent who convinces you to sell, and then you’re out of the game. This is the potential cost of not investing in a good company.

Debt reduction plan

As mentioned above, you move into the consolidation phase once you’ve exhausted your ability to recycle equity. As a quick reminder, equity is the difference between the market value of a property and the mortgage against it. A common strategy in an investor’s lending plan is to borrow against the available equity in a property.

Capital growth in the form of equity is useless, unless you can access it. In order to access it you need to lower your loan-to-value ratio by reducing your debt, or increasing your income (rental yields).

It is completely normal to get to a point in your investment journey where you need to take a break for a year or two whilst sorting out your finances. What you can do during this period is put every single dollar you have into your offset account. An offset account is an account linked to your mortgage that operates like a transaction or savings account. It offsets the balance in that account against the balance of your home loan, so you’ll only be charged interest on the difference.

Financial plan

Your financial plan should be operating in the background throughout each of the phases of your investment journey. Creating a financial plan will set you up to ensure you’re building wealth for the right reasons.

Your financial plan should include the following attributes:

• Specific goals that define what you want to achieve and which are aligned with your values and your personal situation.
• Clear, actionable steps that lead you towards your goals.

Your financial plan will also identify how you are aiming to fund your retirement outside of real estate, such as through your Superannuation or shares.

Wealth acceleration plan

The wealth acceleration plan takes place in the lifestyle phase. The lifestyle phase of an investment property career is the place the property investor is striving towards. You’ve built your portfolio to a point where it is generating enough income for you to retire (in whatever way that is to you).

With capital growth in the market over 15-20 years your portfolio will (hopefully) be worth a lot more than the initial cash you invested. A wealth acceleration plan will map out how you are going to put this equity to work. When you get to this stage it can be easy to fixate on the cost right now, this is where many investors go wrong. In order to quantum leap your wealth to new heights you need to understand the long-term value of your investment.

BUILDING YOUR 7 PLANS WITH THE RIGHT TEAM

A list of 7 plans every property investor must know is all well and good but we all know how hard it can be to stay on top of all the aspects of property investing, particularly in those early stages.

In order to successfully apply these 7 plans across these three stages, it pays to enlist some help. That’s where the TRC-Gorod team comes in. Our team has over 18 years experience in property investment coaching.

Come along to one of our free property investing masterclasses. This two-hour event will give you the opportunity to ask questions to our experts, connect with key people in the industry and develop the support team you need to succeed in real estate.

Register now for the free property investor webinar.

Using real estate to create financial security for the future is a popular option for many Australians, however it can be tricky to know how many investment properties you need to retire to get the outcome you desire.

When it comes to planning for retirement, you need to ask yourself, what kind of lifestyle do you want? For most people it’s to enjoy their golden years without having to worry about money or penny pinching from week to week.

Investing in property is a great way to set yourself up to thrive in retirement because it has the potential to not only increase your net worth but also provide you with a stable income. Many investors ask the question of how many investment properties you need to retire?

The short answer is that there is no magic formula – everyone’s retirement goals are different, not all investment properties perform similarly, and predicting the future is impossible.

However, with help, you can develop a plan for building a portfolio that will satisfy your retirement lifestyle needs. The key is to be able to see past your first one or two properties as you’re going to need a much larger portfolio than that to gain financial freedom.

WHY INVESTORS FUND THEIR RETIREMENT WITH REAL ESTATE

There are a multitude of ways to fund your retirement, and the most common among Australians seems to be relying on superannuation and pension payments. Unfortunately the harsh reality is that depending solely on these will likely force you to live very frugally, especially with living costs rapidly rising. Today the pension sits at about $36,000 per annum, per couple. It doesn’t sound like a lot right?!

Real estate is a long-term investment and therefore time is on your side. The earlier you embark on your investing journey, the greater success you’ll likely achieve. Real estate is a key investment vehicle for many Australians when it comes to planning for retirement and that is because it is stable and will always be around in society.

Positive Cash Flow

Rental property has the potential to generate income if done right, and this is one of the main reasons why people use property investing to retire. The cash flow from a property refers to the pre-tax income earned and is calculated using the below formula:

weekly rent × number of weeks rented in the year = annual rent

– all expenses (excluding interest)

÷ purchase price × 100 (to get a percentage)

This is also known as rental yield. A good figure to aim for is between 4-6%, the idea is for the yield to mirror the interest rate as closely as possible. Ideally, your rental income and tax deductions should be covering the majority of your running costs, and then some to generate a profit.

However there may be times when your cash flow is lower than forecasted, or even negative. Any business is unpredictable, especially the landlord business, you may have to pay for unexpected repairs, or your property may take longer to find a quality tenant.

Any good property investor understands the importance of safety buffers, which refers to money set aside in your budget for any unforeseen expenses. This is not extra money to go on holiday or buy a new car, it should be reserved for legitimate expenses connected with your investment property(ies).

Capital Growth

Home prices in Australia have historically increased over time. According to the latest report by the Australian Bureau of Statistics, the total value of the nation’s 10.8 million homes grew by $2 trillion to a record $9.9 trillion in 2021. What this means is that we have seen a 23.7% increase in residential property prices in the last 12 months, one of the strongest annual growth records.

Of course, nothing increases linearly, and real estate is no exception. However, as mentioned property is a long-term investment, which is why most real estate investors adopt a buy-and-hold strategy so they can make the strong gains that come with a normal real estate cycle.

Recycling Equity

The quickest way to build a large property portfolio is by recycling equity. Equity is the difference between the market value of your property and the amount still owing on your mortgage. This strategy allows you to purchase a property with someone else’s money.

Basically, the bank will allow you (pending conditions) to borrow against the available equity in a property. It can be scary to think about increasing your home loan, however you need to flip your mindset to see the benefit of expanding your asset portfolio using very little of your own cash.

Tax Benefits

Offsetting income with depreciation is perhaps one of the biggest tax advantages of property. Including depreciation within property expenses can increase the loss on paper without incurring a cash loss. Therefore, increasing the expenses and amount of tax deductions available.

Along your investing journey you may have a property in which the expenses exceed the rental income. This is known as a negatively geared property and is most beneficial for high income earners because the ‘loss’ can be offset against other income.

KNOWING YOUR NUMBER

Before you start building your property investment strategy, you need to get really clear on what kind of retirement lifestyle you want to live. This will help inform how many investment properties you need to retire.

It’s a morbid question, but it will underpin your future decision making, how much money do you need to die? Understanding how much income you want each year in retirement is a thought that many of us don’t think about until it’s too late. Whether you’re after a comfortable or lavish lifestyle, you need to do the maths. 

1. Determine your desired retirement annual income
2. Assume a gross rental yield (between 3-6%)
3. Divide income by rental yield

This will give you the amount of money you should have invested in property. It’s then up to you to use this figure and work out how many properties you should own which will be dependent on how much retirement income you desire.

THE THREE PHASES OF AN INVESTORS JOURNEY

There are three phases to building a property portfolio before an investor is ready to reap the rewards of their hard-earned labour.

Acquisition of Investment Properties

The period of acquisition refers to the initial stages of an investor’s wealth building cycle. Your main goal will be to acquire as many properties as possible to help build your asset portfolio quickly, and to generate as much rental income as you can to increase cash flow.

In this stage of an investor’s journey, interest-only loans can become an important part of the toolkit because they allow you to only repay the interest charges on your loan for a specified period (3-5 years). Interest only loans allow investors to tap into a market that they wouldn’t otherwise be able to afford. However, they can also be risky, especially when the principal payments kick in. Any good investor will prepare for this and ensure they have a buffer set aside.

During the acquisition stage, you want to be focusing on high growth properties in a variety of locations in order to make the most out of your equity gains. To do this, you will need to understand what factors influence the market.

There are both macro and micro factors that drive the real estate market.

Macro drivers of growth:

• Population growth
• Infrastructure growth
• Supply vs demand
• Economics
• Demographics
• Yield

For example, you want to have your eye on locations where there are infrastructure developments because this attracts people to a location (population growth). In or near cities are often high growth markets because there are always job opportunities (economics) which again, brings people to the area. These people will become your tenants.

Micro drivers of growth:

• The owners established benchmark
• The new established benchmark
• Socio-economic
• Symbolic landmarks
• The ripple effect

The above drivers will help you narrow down what micro markets to buy in (suburbs or towns). For long-term growth, symbolic attributes are a unique aspect that can enhance the performance of an area. The owner’s established benchmark is when an investor looks for the ‘worst house on the best street.’ Finding a property that is a blank canvas, situated close to properties higher in value will give you a good chance of increasing the value of your investment through renovation.

Consolidation of Property Portfolio

Once you’ve exhausted all of the equity the banks will allow you to lend against, the next phase is to consolidate your investment portfolio. You’ll need to refine your investments to maximise rental yield, therefore increasing your cash flow. Most investor’s will cycle through the acquisition and consolidation phases numerous times until they are ready to transition to the lifestyle phase of their investing career.

To move into a positive cash flow phase, you will need to lower the loan-to-value (LVR) ratio of your portfolio. What this means is that you’ll need to reduce the amount of debt you have, you can do this in several ways:

• Sell one or more non-performing properties: as you move closer to retirement, it is wise to let go of properties that are making a loss, otherwise you’ll have to sacrifice some of your retirement income to maintain the investment.

• Add value to your properties through development or renovation: increasing the market value of your property will therefore increase the value of the investment against the mortgage.

• Stop buying properties (or reduce the rate at which you’re buying them): when you’re in the growth stage, it can get quite exciting expanding your portfolio quickly, but more properties doesn’t necessarily mean more income. As you get closer to retirement it is best to become very selective with the properties you acquire.

Once you’ve reduced your debt to a lower LVR – maybe somewhere like 50% or so – you’ll be able to enjoy the benefits of leverage while owning property that is positively geared. A property which is geared positively means that the income derived from owning the property exceeds the financial and maintenance costs incurred. Positive gearing is generally seen as lower risk than negative gearing because it provides more consistent income.

Retirement Lifestyle

You’ve finally made it! The lifestyle or legacy phase of an investment property career is the place the property investor is striving towards. You’ve built your portfolio to a point where it is generating enough income for you to retire (in whatever way that is to you).

Maybe you’ll work fewer hours in order to do something you enjoy more, such as travelling, gardening or golf. Regardless of what retirement means to you, the main idea is that you no longer need to work in order to fund your lifestyle, because your investment properties now provide that income for you.

Once they reach retirement, most investors adopt a more conversative approach to investing, in order to protect their assets that they have so tirelessly grown over the years. During this stage, there is less focus on building your portfolio and more emphasis on enjoying passive income.

THERE IS NO MAGIC NUMBER TO HOW MANY INVESTMENT PROPERTIES YOU NEED TO RETIRE 

Everyone wants to have passive income in their retirement, but not many actually reach the stage where they can successfully make the switch. The first step is deciding what kind of retirement lifestyle you want, and then working out how much money you’ll need to fulfil that.

If you’ve decided that property investment is your chosen vehicle for creating wealth, then your next step is to get help. Instead of asking, how many properties do I need to retire, you want to focus on the combined value of your portfolio and the returns it provides.

Find someone that has done what you want to do and follow their example. That’s where the TRC-Gorod team comes in. Learning from someone who has done what you want to achieve is the quickest and easiest way to learn.

Come along to one of our free property investment seminars. Our coaches and mentors have real life experience as property investors and can give you the tools, resources and knowledge to help you build your wealth portfolio for retirement.

Register now for the free property investor webinar
See our property investment strategy guide
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So you want to begin your property investment portfolio but you don’t know where to start? Join the rest of Australia! In today’s society there is still no avenue for teaching children and young adults about wealth creation and financial freedom.

Some may stumble across a business opportunity, or perhaps investing in shares, but our go-to vehicle is real estate. Real estate is a long game that has the potential to provide generational legacy wealth, if done correctly.

To set yourself apart from the 99% of investors who fail, you need to ask these 5 questions before investing in a house.

DO YOU WANT TO BE AN EMPLOYEE OR AN INVESTOR?

Do you have what it takes to be an investor? One of the greatest setbacks that most people experience from the education system is the lack of knowledge about how to become financially abundant. Many people enter adulthood without the understanding of taxes or even a basic budget.

School teaches you to be an employee – you trade your time for income. In comparison, investors dive into the real estate game because it allows them to make a steady and increasing income from their property portfolio.

We need employees, that is how society has been built to function. However, you don’t need to succumb to this ‘majority’ and the fact you are here reading this article is proof that you have what it takes to escape the rat race.

Property investment is a fantastic wealth creation vehicle because it is underpinned by the philosophy that profits are better than wages.

Trading your life for money is okay to some, but for the other side there comes a time in life when they’re ready to work less hours for someone else, to concentrate on other things they love while still getting paid.

The answer to this equation is real estate.

The goal of property investment

The goal of property investors in the market is to target optimistic returns.

If you fully accept that profits are better than wages, it will serve you well for a lifetime. Understand that companies, banks and institutions are all hunting profits and that they’re all hunting in the same safari park as you – the Australian property market.

Yes, learning how to create your own profits comes with time and experience but the payoff is worth it.

Why everyone doesn’t invest in property

If property investing is such a smart and lucrative profit making machine then why don’t more people do it? The reality is that for most, owning multiple properties simply feels out of reach.

On top of this, many don’t know where to begin when it comes to creating long-term sustainable wealth for themselves.

You must seek the knowledge you never got

You would think that in the developed country of Australia, wealth creation would be passed down from one generation to the next and these invaluable lessons would find themselves in the education system!

However, very few people obtain the necessary education to make sound financial decisions. For many Australians, the success that is ‘making money’ is entirely misunderstood and seems unattainable.

So, we actually have to seek the knowledge as we grow.

WHAT IS YOUR FINANCIAL FREEDOM NUMBER?

The next question you want to answer before investing in a house is, ‘what is your number?’ This is the big critical question that everyone needs to answer and that is ‘how much money do you need to die?’

Drilling down to specifics is vital in property investment. Knowing exactly how much money you need to live the life you want – whether that be a shorter working week, giving up work entirely, or being able to have one more holiday a year – will enable you to get there that much quicker.

Decide what kind of life you want. Work out how much it costs. Then you will know how many properties you need, at what rent rates and capital growth, to get there.

Setting yourself up for retirement

If you’re planning to rely on the pension and your superannuation when you retire then you can expect to only be surviving not thriving. The pension is $36,000 per couple or $24,000 if you’re single and that is topped up by about $523,000 (approximate super amount by 65) that will need to last about thirty years.

One in four pensioners are living in poverty. A huge factor that determines those circumstances is the security of housing. Owning your home has shown to be a game changer in retirement as the cost of rent is substantial for someone on a pension.

Of course, the more real estate you own, the more secure you will be in the long term. Setting yourself up with a real estate investment strategy now means you’ll have more bases covered in case things go pear-shaped. By paying down the debts while you’re still working, you’ll be able to focus on living off the passive income throughout retirement.

HAVE YOU SET A BUDGET?

It’s time to get really clear on how you’re going to make your ‘magic number’ a reality and the best way to do this is through budgeting. Budgeting is about getting a clear picture of your incomings and outgoings so that you can determine how much you can save and invest each week. The key here is to get really specific – if you’re wanting to save $100k for a deposit, then break that plan down into bite size steps.

A simple and effective budgeting strategy is the 50/30/20 rule which is the idea that 50% of your income goes towards your needs, (mortgage, bills) 30% of your income goes towards entertainment and 20% needs to be invested into income producing assets.

If that is too conservative for you, then another great budgeting strategy is the 50/50 technique which is where you live off of 50% of your income. If you can do this, you will end up in a place where you can budget for anything.

However, it is important to note that your budget must be realistic so that you aren’t left feeling deprived. A sustainable budget should still allow for you to enjoy the indulgences of life that mean the most to you. You want to set yourself up for success.

Budgeting is an invaluable tool that will prove very useful before you invest in a house and it will become vital once you own that investment property.

ARE YOU RESISTING TO LIFESTYLE CREEP?

Whether you just landed a new job with a higher salary, a promotion at work or even a paid off car loan – it is normal to immediately start spending more money. Maybe now it’s time to order a five course meal or sign up with a personal trainer: you’ve earned it!

If you have ever had an increase in money enter and leave your life then you have become a victim to lifestyle creep. With the increased income you’ve elevated your lifestyle situation to match.

If you are not careful, you may wake up one day and realise you now use 16 different hair care products, you own a second car and you live in an apartment you can’t afford.

Don’t let this happen to you.

How to reverse an escalating lifestyle

• Cut back on the subscriptions – Make a list of your recurring memberships, such as those for streaming, gaming or even dating! Weed out the ones you don’t need.
• Declutter your closet – Go through your clothes and be brutally honest about what you have not worn in the past six months. Get rid of it.
• Replace goods – If it’s possible, replace items that are currently too expensive for you, such as your car (petrol, maintenance) or the place you rent.
• Make mindful choices – Pay attention to where you money goes and ensure you think through a purchase in depth before buying.

ARE YOU PREPARED FOR THE LONG-TERM GAME?

Real estate is a long-term game. The longer you hold onto your property, the more money you will make as you ride the wave of market inflation.

There are too many investors that buy a property and expect it to go up $100k overnight. The property market doesn’t work that way. The saying ‘good things take time’ is relevant to playing the real estate game – the longer you’re in it, the more likely you’ll win it.

The key question you need to ask yourself before investing in a house is, “are you prepared to hold your property for more than just a couple years?” This is the basis to a successful property investment strategy, however it does come with some challenges.

Do the numbers

If you want to be able to hold onto your real estate for long enough to create significant wealth then you will need to understand the financials associated with it. At a basic level, you will need to be across cash flow, rental income, maintenance fees and taxes.

The next step is to ensure you have a significant buffer for unexpected expenses that may arise. Taking time to analyse your real estate and do the maths will ensure you’re prepared for every eventuality and can go the distance.

Rental return is key

Charging enough rent to cover your debt, expenses and to even save to renovate down the track is the ideal solution. This will allow you to hold onto your property for the time it needs to grow in value. It is therefore very important to make sure your rents can continue to increase each year.

The major factors that influence rents are:

• Tenants – Choosing tenants who earn good incomes and are able to sustain rises in rent is vital.
• Location – Ensure you buy in an area that is on the trajectory of growth to ensure there is always a demand for rentals.
• Liveability – If the area offers tenants things like modern, well-maintained services, great outdoor spaces, and convenient, high-end social outlets, people will pay more to live there.
• Being a good landlord – Respond to maintenance needs quickly and give decent notice for inspection tol help make your tenants feel valued. This will make them less likely to object to an annual rent increase.

Invest in your investment

If you’re in it for the long haul then it is important to look after your property. If you do not live close by, you will need to employ a property manager. Take your time to research companies and find one that truly cares about your investment success. Peace of mind that your real estate is being taken care of is invaluable.

ONLY THE EXPERTS CAN ANSWER YOUR INVESTMENT PROPERTY QUESTIONS

So there you have it, the 5 questions to ask before investing in a house. Do not be alarmed if these questions prompted a thousand more. It is said that it takes 10,000 hours to master a skill. No one is expecting you to become an expert after reading this article.

Any successful property investor understands that they don’t need to be an expert in tax law, location scouting or budgets, but they do need to know where to find the people that are experts in those areas.

This is where our team of coaches and mentors can help you on your way to becoming one of the one per cent. The one percent of Australians who are successful property investors.

If you want to start building your own team of experts, then come along to our free real estate investing seminar. This jam-packed two hour event will give you all the information you need to start out in property investment, and you will be able to ask questions to our specialist team.

Register now for the free property investor webinar

It is all well and good to have a property portfolio that delivers good capital growth and positive cash flow but the key principle that will validate your long-term success is asset protection for real estate. 

Protecting your real estate assets is perhaps more important than building them. Obviously we always hope for the best, but there are many things that can go wrong and when they do, you and your assets are at risk. 

Incorporating prevention measures into your investment strategy could be the difference between you continuing to build out your wealth or losing everything you own. 

WHAT IS ASSET PROTECTION? 

In essence, protecting your real estate assets is a means of shielding them from being used to meet creditor’s claims. 

Any business has risks and you need to make sure you are well prepared for anything that gets thrown your way. Here are just a few scenarios in which asset protection would be needed: 

• Market changes dramatically (just look at what Covid did to supply chains). 
• A customer going out of business meaning they’re unable to pay you.
• You get injured and are unable to work.

Asset protection will ensure that any business risk you may experience will remain separate from your family and your personal assets. 

To reduce that vulnerability, it is vital that you implement strategies to protect your property and personal wealth from potential loss of control. 

COMMON ASSET PROTECTION ASSUMPTIONS 

It is fairly common for people to think that they don’t have to protect themselves. It is within our human nature to assume that no one is out to get us. But to tell you the truth, if you own even just one asset, you are at risk of losing it. 

Assumption one: Only the rich protect their assets 

Contrary to popular belief, the rich have less of a need for asset protection because they have a larger capacity to pay the judgement and move on. Whereas an investor who has just started out in their journey would be much more susceptible to losing everything if they were to go up against the creditors tomorrow. 

Assumption two: If you’re sued, you can transfer ownership to a family member

Transferring your assets to your spouse and/or children, especially after something has happened, will not protect your assets. The court will follow the paper trail and it will be deemed that the family member is holding those assets on your behalf. 

Assumption three: Asset protection is expensive 

Protecting your real estate assets is relatively inexpensive. It is a lot cheaper than the legal fees associated with defending yourself in court. So set aside some funds in your budget and invest the time into building an asset protection strategy that works for you. 

CHOOSING THE RIGHT STRUCTURE 

A ‘structure’ refers to the way in which you choose to hold title to your investment property(ies). Most investors choose to buy under their own name – it is the least expensive and least complicated method, however it can leave your assets open to risk.

There are four main structures that are used within real estate: individual name, company, partnership or trust. Each structure brings their own benefits and downfalls to the equation. It is recommended that you seek professional help before determining which structure is right for you as they will all vary depending on your situation. 

Ideally you want to get it sorted from the beginning of your real estate journey because your chosen structure will impact things like debt restructuring and retirement planning.

Individual name 

This is the most common means of ownership. The benefits and drawbacks apply whether the investment property is held solely or jointly.

Partnerships 

Partnership structures do have several advantages in terms of setup and ongoing costs. However, it does not provide any real asset protection. Whilst partners are not subject to directors duties, each partner does owe fiduciary duties towards one other. 

Companies 

A company structure can provide you with good asset protection for your real estate. However, on the downside, they are a bit more costly to set up and operate. 

Trusts 

A trust is not a separate legal entity according to law. It is a relationship where a person (the trustee) is under an obligation to hold property for the benefit of other persons (the beneficiaries).

Trusts are a key strategy that real estate investors use to protect their assets. The beneficiaries do not own the assets which means creditors will have a difficult time making a claim against them. It also protects your assets against potential divorce of your children and grandchildren, keeping the assets within the family. 

A trust structure also benefits from the 50 percent capital gains discount. A tax downside to trusts is that it cannot distribute losses to beneficiaries. Any loss remains within the trust, and this can limit the benefits of negative gearing.

While trusts can be an effective strategy for asset protection, the finer details can be complex and there seeking professional advice is paramount. 

There are 4 main types of trusts:

• Discretionary trust 

The term “discretionary” in reference to a trust involves the powers that the trustee has in deciding which beneficiary(ies) receive the net income from the trust either annually or at one time, depending upon the terms of the trust.

The most common type of discretionary trust used is the Family Trust. This kind of trust will have a trustee which holds the asset(s) in trust for the benefit of the family members (beneficiaries).

For tax purposes, a discretionary trust generally provides the most flexibility when it comes to net income because the trustee has the discretion to distribute different amounts of income to different beneficiaries. Depending on the trust deed, a similar flexibility may also apply to the distribution of any capital gain to the beneficiaries.

• Unit trust

In a unit trust, the beneficiaries’ rights to income and capital in the trust are fixed. In other words, a trustee is required to manage the trust according to the number of units each investor holds. 

The beneficiaries in this kind of a trust are known as “unit holders”. There may be differences in voting rights, income and capital distribution rights, etc depending on the fixed interest each unit holder has. 

• Hybrid trust 

As you might imagine, a hybrid trust takes the best of both worlds (unit trust and a discretionary trust) and combines them to create a powerful and flexible tax planning vehicle. 

• Testamentary trust

A testamentary trust is a trust that is created by your will, it manages your affairs after you’ve passed on. 

Superannuation funds 

It has become increasingly popular for people to manage their own superannuation funds (SMSF) because it allows an investor to have full control of their retirement assets. If the goal of your property portfolio is to save for retirement, then adding real estate to your SMSF might be a part of your strategy. 

The concept is similar to other types of trusts, however this kind of trust is only meant to provide funds for the retirement of the trust members (the beneficiaries).

While having control over your own super can be appealing, it’s a lot of work and comes with risk. While it may protect your assets from potential creditors, you still will be personally liable for all decisions made and if you were to lose money through theft or fraud you wouldn’t have access to any compensation or the Australian Financial Complaints Authority (AFCA).

If an SMSF is something you are interested in, please seek professional advice from a lawyer and tax accountant. 

INSURANCE 

Insurance cannot protect you against every possible scenario but supplemented with the right structure, you can sleep peacefully at night knowing that you’ve got the best strategy in place to reduce the vulnerability of your assets being at risk. 

The main insurance type that would benefit most real estate investors is ‘landlord insurance’.

Landlord insurance

Landlord insurance is a type of home insurance that protects your investment property if it is destroyed or damaged. You also have the option to insure for things like loss of rent, tenant default and malicious damage. If you have leased any of your belongings to your tenants you can protect this with contents insurance. 

Insurance cover will vary by company so it is really important that you always review the relevant Product Disclosure Statement (PDS). That way, you can make sure the policy you’re purchasing covers the events you want protection for.

SPEAK TO AN EXPERT ABOUT HOW TO PROTECT YOUR ASSETS 

Now with this knowledge, you can understand and appreciate the importance of asset protection in regards to your wider investment strategy. The best way to know how to protect your real estate assets is getting the right help. 

Asset protection is not a one size fits all approach. Your strategy needs to be customised to suit your lifestyle needs which will require expert advice. 

With the right team you can develop and execute a master plan that will ensure your property portfolio is well protected. Come along to one of our free real estate investing seminars, ask our team questions and connect with industry experts that can help you streamline your real estate investment strategy. 

Register now for the free property investor webinar

Ever thought you’d picked an absolute winner of a property only for the bank to come back with a list of valuation risk factors? 

It’s more common than you think, particularly in a rising market where values fluctuate so much that our ideas of what a property is worth actually start to disconnect from what a valuer sees. 

Now, there are a lot of considerations a lender will make when determining whether to give you a loan or not. Obviously, your personal finances like your income and outstanding debts matters greatly, but banks are also heavily concerned about risk – and valuation risk factors can really change how they choose to finance you. 

Remember though, while valuations can be a challenge, they aren’t the final word on what happens with real estate. As a property investor, it’s your job to determine if and how that property can grow in value.

Don’t start missing out on great real estate because the bank has deemed there to be valuation risk factors. You need to be in the market to benefit from it.

WHAT IS A VALUATION?

In the real estate industry there’s this little phrase – There is God, and then there are valuers. As a property investor you need to understand why valuation risk factors matter in your ability to borrow.

Essentially, a real estate valuation is an unbiased report that details what a property would be worth in the market. 

The person conducting the report – the valuer – is usually outsourced by banks and lenders to independent companies so that it remains impartial. 

A valuer cares only for history. Their role is to look back and determine what was happening in previous markets. Think of them as living three to six months in the past at all times. By nature, they are very conservative when it comes to risk. 

The most important thing you need to remember about a valuation is that it is tied only to lending, so as property investors, we are likely to need them in order to obtain finance. The final number given by the valuer advises the bank or lender how much they could allow you to borrow.

Of course, this doesn’t mean that the final sale price will align. The market is influenced by so many other factors and there is no way to know how much a vendor or seller could get for the property. However, they are the most accurate way to determine what a piece of real estate is worth. 

For a more in-depth look at how you can value real estate yourself, this is an awesome podcast to check out: how to value real estate.

THE 8 VALUATION RISK FACTORS LENDERS LOOK AT

Lenders rate each factor on a scale from one to five. They then make their finance decision based on both your personal situation and the property valuation risk rating you get.

1. Location

Is the property in a highly desired location? Is it close or far away from amenities?

Naturally the closer a property is to key amenities such as employment hubs, transportation and quality education, the better the rating that suburb will receive. 

Choosing a fantastic location is crucial for property investing success. Working with a property coach or strategist will help you narrow down the best areas to buy in that work for your budget.

2. Environmental

Properties in areas prone to natural disasters such as flooding and bush-fire zones will always rate as a higher risk. 

It’s also generally harder to get comprehensive insurance in these suburbs which is something to factor in beforehand.

3. Improvements

Newer properties typically rate better than older or more established ones, however if a property shows signs of good maintenance over the years, and improvements have been finished to a good standard, it can still attain a good rating.

4. Land size

Certain land-ownership issues such as zoning, title, and access can impact the marketability of a property.

Lenders want to be assured that each of these factors are satisfactory and that no outstanding problems will arise that could impact your investment.

5. Volatility

A lender wants to know if that market is more subject to volatility. For instance, an inner city unit might be deemed more of a high risk property if there is a lot of oversupply in the market.

6. Expected future value

Lenders tend to ask valuers about what’s going on in the market and where it appears to be headed.

Basically, they want to know if they can expect a reduction in value in the next two to three years based on all these other valuation risk factors.

7. Local economic conditions

Single-market economies where there are very few employers and/or where the employers are in a high turnover industry (e.g. mining or tourism) will rate as more of a risk than places like major cities where there are a number of employers in a diverse range of industries.

8. Market sector

Finally, lenders want to know where that property lies in terms of saleability and whether they will be able to recoup their costs should the need to sell arise. 

HOW TO AVOID BUYING A HIGH RISK PROPERTY

Each of these valuation risk factors determine the position and quality of your property in the eyes of the lender or bank. 

A property valuation risk rating of four or five is considered to be relatively poor security for banks, which means there is a chance the bank will limit lending or not even lend at all.

Of course, we don’t want that! So how do you avoid buying a property lenders would consider high risk? 

Well, the most obvious one is buying in a good location. 

There are so many things to consider when it comes to location which is why you should never a) choose location based on preconceived ideas, and b) pick a location without doing a tonne of due diligence first. 

Here some quick tips when picking a location:

• Avoid buying on main roads – the noise and traffic will boost your risk rating
• Similarly, avoid properties that back onto train lines or are right next to an airport
• Buy near good amenities like transport, schools and cafes
• Avoid locations that already have an oversupply of real estate
• Don’t buy into suburbs with high vacancy rates

The other factor you want to consider is whether or not it appeals to the majority demographic in that area. 

Above all, you want to make sure you’re buying into an owner-occupier suburb – not an investor suburb. If the percentage of homeowners is higher, it’s likely to be a safer investment.

That’s because owner-occupiers like to think long term, so they won’t get up and leave their home in a crisis.

MAKE SURE TO DO YOUR COMPARISONS

A good place to start when you’re considering a purchase is to look at what you’re comparing it to. You can do that in three ways:

Compare the place

We often see the comparison of property when it comes to regional versus city. 

City real estate is naturally more expensive to buy and smaller in land size, while regional real estate is cheaper to purchase with a lot more space inside and out. 

However, you need to compare what both places can do for you. City apartments for example attract higher rental yields and higher occupancy rates, making them a big win for increasing cash flow and creating quick income. 

Regional properties often fetch lower yields and are at this moment going through longer vacancy periods thanks to coronavirus pushing people to live in places where they work. 

Compare the infrastructure

Real estate needs some fundamental factors that will not only increase its capital value but also attract good rental rates. One of those things is infrastructure.

Good infrastructure opportunities like new roads, public transport and power facilities don’t just make an area more attractive to live in, but it also creates jobs – which means more income in the area.

While the property you’re looking at might seem like a steal, if it isn’t supported by good local infrastructure, the area won’t develop and grow and over time people won’t want to live there. 

Compare the place economy

A place economy is an area that is attracting wealthy people – not only to live there but to socialise and be seen there. 

Bondi is a classic example of this. Bondi itself has become a brand that the whole of Australia knows about. People want to travel there, live there and spend their time there. 

So if the option is to buy a huge $1 million house in the countryside where no one lives and it’s an hours drive for a decent cup of coffee, compared to a two-bedroom apartment in Bondi for the same price, wouldn’t you go for the one where you’re likely to get better and more consistent returns? 

THERE’S NO RISK TO VALUATIONS IF YOU CHOOSE THE BEST REAL ESTATE

Valuations and valuation risk factors shouldn’t be a factor of concern if you’re smart about where and what you buy in the real estate market. 

Once you get the hang of property investing you’ll instinctively understand which properties will return lower risk ratings and which ones are more likely to get knocked back by lenders. 

As we know the best way to learn is by connecting with the experts who know this stuff inside and out. Meet the best in the business at our next free property investing masterclass. Our real estate coaches have over 20 years experience helping investors make smart, informed decisions, helping them create million dollar portfolios to get them on the path to financial freedom.

Register now to join the next seminar near you.

Right now, in Australia, we are experiencing a record low in interest rates – meaning cash is cheap and it’s a great time to borrow and invest.

But it’s unlikely to last. In fact, it’s not a matter of if more than it is when…

Smart property investors know that it’s dangerous to get too comfortable. Real estate is an ever-changing thing. Markets go up, down and plateau – and so do interest rates.

The question is, how prepared are you for a sudden spike?

PLAN AHEAD NOW

The key to being ready is having a strategy.

Before you spend a single cent on property, you should first devise a long-term plan that takes into account:

• Changing interest-rates
• Changes in capital growth
• Emergencies
• Changes in personal circumstance

Let’s be clear. 

While a clever strategy considers and plans for all of the above, the end-game itself is NEVER influenced by any of these changing factors. Instead, because these variables are anticipated and accounted for, investors can remain focused and unphased by market distractions or disturbances.

DOUBLE DOWN ON OPPORTUNITY

If you’ve invested or held property in Australia in the past 12 months you’ve probably locked in some low-interest rates. 

Hopefully your rent rates are healthy and you’re in a positive cash flow situation, with more money coming in from your investment than is going out.

What you do with that cash flow will make all the difference if interest-rates rise.

Spend it on assets that look pretty but don’t appreciate – think cars, jet skis, expensive clothes etc – and you’re not taking advantage of a good situation.

WHEN THE GOING GETS TOUGH, THE BUFFER GETS GOING

Instead of splashing out on high-ticket items because of the savings you’re making off low-interest rates, use this opportunity to get ahead of the game. 

The number one thing property investors need to do when the going is good, is to create a financial buffer for each of their investment properties.

A buffer is an emergency amount of capital or money that investors can use. The key to this buffer is that it’s liquid. It’s real cash that you can get your hands on easily and quickly.

A buffer protects you if your circumstances change, if a tenant doesn’t pay rent, or if something in the property breaks and needs a fast replacement. 

It also means that when interest rates increase and your rent rates take a while to catch up, you stay in the black. 

Over time, if you continue to pay into the kitty, this buffer can even allow you to renovate your property when it needs a lift, which will help to keep your rent rates high. 

We recommend having anywhere from $5-10k per property to make sure you never have to put your hand in your own pocket for when the unexpected happens. 

As property investors we want 100% of the cost of our properties – that’s renos, insurance, emergency maintenance and any interest-rates spike – to come out of a buffer, and not our pockets.

Talk to the coaches at TRC-Gorod about how to structure your strategy so that your buffers are healthy enough to keep your properties paying for themselves.

DEVELOPING YOUR INVESTOR STRATEGY

There’s no denying that everyone has an opinion regarding the real estate market right now, but the truth is, no-one is an expert except the experts! They’ve been in the game long enough to see how the different property cycles work and what you need to be aware of right throughout your investment journey. 

Learn more about how you can take advantage of the current property market at one of our free property investor seminars. You’ll be led by a team of professionals who have demonstrated experience working across all types of markets so you can optimise your ability to grow a budding portfolio, create passive income and get set for the future – whatever that may look like for you. 

Spaces are limited. 

Register for the free property investor webinar now.