Acquiring an additional bricks and mortar asset on the basis of anything other than the science of investing and what that means for you personally, can have undesirable consequences.
Timing your next property investment should be based on facts and figures above all else, and in direct alignment with your overall investment strategy and objectives.
Unfortunately, a lot of property investors fall short when it comes to planning and in turn, end up purchasing property based, not on careful analysis of their personal position, but advice from a friend or family member, ill begotten financial planning (where they’ve been peddled a product instead of receiving impartial guidance) and overall market sentiment – i.e. because everyone else is doing it.
However if you follow these 6 fundamental steps, ensuring the timing of your purchase comes down to careful consideration of where you are now and where you want to be in the future, you’ll be less inclined to react to market changes and more likely to be a pro-active property investor. And it’s this distinction that sorts the ‘dabblers’ from the wealthy success stories.
1. Review your financial position
There’s really no point doing anything else until you ascertain whether or not you have the financial capacity to purchase another addition to your property portfolio. Researching markets and talking to mortgage brokers is putting the cart before the horse if you haven’t reviewed your current equity position.
Are you able to refinance any existing property(s) to take advantage of the current low interest environment?
2. Can you sustain another property investment?
Once you know another mortgage is achievable, the next question is; do you have the serviceability to sustain an additional asset and associated costs? How healthy is your cashflow position? Are you able to comfortably meet your existing repayment obligations? Do you have the income – rental and work based – to service an additional loan?
And it’s not just whether your existing equity will cover the deposit and costs for a new property investment, but also an increased cashflow buffer so you have something stashed away in case any maintenance issues arise, or extended vacancy periods mean your rental income stalls.
Basically – can you afford another property investment not only now, but in five, ten or twenty years from now?
3. Does it align with your investment strategy?
The first thing you need to do in order to succeed in property investment is identify your objectives and then work out a plan to help you reach those goals, with minimal risk along the way.
A sound investment strategy requires detail, including how many properties you intend on collecting in your portfolio throughout the accumulation phase and how long you need to hold them for in order to realise the necessary return on investment.
Of course you could find your portfolio allows a more robust accumulation phase than you first thought financially viable, in which case you might decide to take advantage of fortuitous market fundamentals to purchase outside of your initial plan.
But overall, it’s best to stick with your strategy. Doing so will reduce your risk of being sold questionable assets tied up in the latest fads, or being distracted by market noise.
4. How is the market placed?
While timing the market is not as critical as following a well devised investment plan, ideally you don’t want to be buying when prices are high and competition is fierce.
Take today’s market for instance. You need to weigh up the benefits of lower interest rates that could last for another 12 months, before starting to move back up and take your loan repayments with them, versus the potential to pay over-inflated prices for properties in suburbs where buyers are scrambling for dwellings.
This is a tough one, because a lot of the hype we hear around property markets often isn’t a true reflection of what’s actually going on at the coalface. So at this stage, you are well advised to seek the counsel of a professional, experienced buyer’s agent who can give you better insight on local values and the overall state of play.
5. Review your portfolio
Before you think about adding or subtracting, you need to undertake a detailed and honest review of your property portfolio. Are your current assets performing as required?
Does anything need tweaking to increase your cashflow or equity position? For instance, is there a property that could use a bit of a cosmetic makeover to increase your returns and capital?
A portfolio health check should be performed annually, not just so you know you’re still on track, but to determine whether changes or additions need to be made to the assets you’re holding.
6. Talk to your mortgage broker
Once you’re confident that you have the financial capacity to acquire an additional property investment and the timing is right for your overall investment journey, it’s time to take action.
Speak to your mortgage broker to determine the best way to introduce new debt into your existing finance structure and work out a plan for refinancing as required.
Ultimately it comes down to your degree of comfort as an investor when considering your next property purchase. Working through these steps will give you a good starting point to feel confident in your decision to add to your portfolio, and should also provide greater clarity in terms of the type of property you need to be looking for – the type of property that will boost your long term gain.