Don Crellin of Resolve Financee explains how a disciplined and planned approached with investment choices will assist in withstanding troubled times.
With the average Australian household carrying a lot of personal debt, Don Crellin of Resolve Finance says his team is receiving significant enquiry from investors focusing on how to best manage their finances when times are tough. Here, he explains:
Investing in property is a long-term proposition:
- You are likely to experience a number of economic cycles so it’s important that you are prepared for both the good and the bad. As with anything, failing to plan is planning to fail - declining markets can be unsettling but it’s important not to act hastily.
- Keep focused on long-term investment goals, especially if you are investing for retirement purposes.
- A good financial planner is invaluable to have on side to assist you with this process.
- Don’t get into the market on the belief that you will be a millionaire overnight.
Do your research:
- It’s important to remember investing in property isn’t the same as purchasing a property to live in – make sure you don’t treat it the same and purchase on emotion.
- Understand the area you are investing in – (transport, schools, amenities, proximity to major employment hubs etc.)
- Ask yourself if the property type in line with what else is in the area? For example (ie: its not ‘unique’ and attractive to a smaller audience. This may impact on vacancy rates)
When to purchase:
- It happens every cycle; when the property market is going well, most people think that the cycle will be different this time and it will keep going. They often find ways to justify it. This is when most in the market look to jump in...when it’s not going well they also think the cycle will be different this time and it will keep going down. Conversely, this is when many people will look to get out or pause their decision to get in…
- Many say that the best time to get into a market is when others are getting out. This generally signals the bottom of a market, so in many ways, makes sense. My advice would be the importance of having a strategy (what are you looking to achieve, why and by when) and let this drive your decisions. More people succeed in making good decisions in this way rather than trying to ‘time’ the market.
Being prepared:
- Plan for the difficult times up front – ensure these are factored into your initial strategy. Consider:
- Extended periods of tenant vacancy.
- The need for repairs.
- The possibility that rents may need to decrease to meet the market or to hold onto a good tenant.
- Interest rates may increase.
- Loan types / structures offered by Banks may change - such as what the market has just experienced with banks restricting access to interest only lending.
- Make sure you do your own sums here and not just rely on what a bank will tell you about your maximum borrowing capacity.
- Keep a cash buffer.
- As part of your plan ensure that you regularly review your finance arrangements. Gone are the days that all banks have similar interest rates or loan - they are changing constantly.
Original article: http://www.apimagazine.com.au/property-investment/investment-considerations-to-withstand-tough-times