In Michael Yardney’s book – How to Grow a Multi-million Dollar Property Portfolio – in your spare time, he shares with readers some of his most successful property investing principles. Although I did not agree with some of these principles, in general, most of them are founded upon his personal experience in property investing of over 35 years.
Here are some of Yardney’s principles:
1. Invest in areas where there is always strong demand from owner-occupiers and tenants alike. This strategy would include most areas or suburbs which are close to the CBDs with good public transport, amenities and job opportunities.
2. Always choose capital growth over rental yield. Michael Yardney advocates that residential property is a long-term proposition unlike investment in stock and shares. Invariably, good properties in choice locations command a higher value and as such, these properties have lower rental yields compared to properties in areas which are further away from the CBD. Investors are sometimes attracted to properties which give good cash flow but Yardney feels that, in general, capital appreciation for such properties may not as good as those in high-demand locations in the long run.
3. Have the mindset of a successful person and surround yourself with an A-team of advisors. By having the right mindset, Yardney is talking about having a burning desire to be successful, disciplined and decisive in nature towards attaining one’s goals. Being surrounded by an A-team means hanging around with like-minded people who share your passion and similar goals in life. A property investing A-team will necessarily include a good legal advisor who is very experienced in dealing with property law and regulations within the state you are investing in. Other professionals would include a good accountant who is familiar with taxation issues, a mortgage broker who is knowledgeable about the vast array of home loan and mortgage products in the market. Other people may include successful and experienced property investors, builders, architects, surveyors and real estate agents who have intimate knowledge of their respective fields of expertise.
4. Buying the right property as opposed to buying well and the power of leverage. Yardney feels that the price is one of the last things to consider when choosing a property. Of course price is important but buying at the right time within a property cycle, in the right suburb and in the right locality within that suburb, then choosing the right property and finally at the right price is the most important process which investors invariably fail to follow. Most investors look at price as a deciding factor and the fact that a property is a “bargain” signals to these investors they are in for a good thing. There is always a reason (or many reasons) and sometimes a “trap” as to why one property is “cheaper” than another with very similar attributes. Buying the right property will ensure better than average / superior capital growth and hence offer the investor with more choices in the future – refinancing equity with leverage to acquire more properties and generate further wealth.
5. Have the right ownership structure, understand property cycles and manage risk. Having the correct structure means having adequate asset protection, ability to refinance without self-imposed limitations, flexibility in succession and estate planning and maximisation of tax benefits that come with property investment such as establishing and investing through Self-Managed Superannuation Funds (SMSFs) and family trusts. Real estate prices move in cycles and it is more than just anticipating prices which go up and down over time. It involves an appreciation of factors which affect supply and demand, demographics such as Australia’s aging population, recent strong immigration policies and population growth, interest and exchange rates as well as the intricacies of real estate climate within each Australian state. Understanding a host of investment risks such as prices, costs, interest rates and changing political climate some of which are beyond anyone’s control are just some of the issues an investor needs to take into account.