“The times, they are a ‘changing …”, as the song goes. So much so that it’s hard to keep up with changes to lending rules that banks and other non-bank lenders have recently adopted. To understand why these changes have been introduced you have to consider the current economic dilemma in Australia.

On the one hand, the Reserve Bank of Australia (RBA) needs to keep interest rates low to free up cash, to encourage people to spend more to bring cash back into the economy. They also want businesses to borrow to invest, so that they can grow, increase productivity and employ more staff. On the other hand, record low interest rates are fuelling house prices – at alarming rates in some areas – and the regulators are concerned that some property investors may be taking on more debt than they can really afford.

In an attempt to address these problems, lenders have been encouraged to take steps to tighten lending criteria. There are four main ways that they propose to do this:

Let’s take a look at what this all means.

An 80 per cent loan-to-valuation ratio
Lenders are comfortable with lending on an 80 per cent LVR because it means that if property prices fall, they would have to drop by a substantial 20 per cent before the owners are left with ‘negative equity’ – that is, the loan amount exceeds the value of their property.

Before these changing times, many investors were cautious anyway and would only borrow 80 per cent of a property’s purchase price – funding the balance plus costs by way of a deposit or equity in another property they own. This is fine if you have the 20 per cent deposit or equity, but it discriminates, to a certain extent, against high-income earners who are less risk-averse. They are confident they can meet repayments, even when interest rates start to climb. They are prepared to wear a fall in property prices in the short term until the market picks up again and they start to see some capital growth. One way lenders used to accommodate investors buying on an LVR greater than 80 per cent was to insist they take out mortgage insurance. This is costly – but again, if that’s the price of entry into the market, there are investors who will take this option.

Tighter lending guidelines now make it more difficult to borrow on higher LVRs. Right Property Group can discuss your options with you if you easily meet serviceability criteria, but fall short on the deposit.

Increase the stress-test threshold
The standard variable home loan rate is about 5 per cent (you may be paying less if your broker has negotiated a better rate for you). When banks decide whether to approve your loan application, they do some modelling to see how your cash flow will cope with higher repayments when interest rates rise. They usually apply an increase of one to two percentage points. This is referred to as the “stress test”. Since lending criteria have been tightened, the stress test rate has been raised to a minimum 7.5 per cent, making it harder to qualify for a loan.

Sensible investors and their mortgage brokers already calculate repayments at higher rates than are currently on offer, but now banks are imposing their more conservative view across the board. Previously, most banks only “stressed” the money you were borrowing from them and took the other lenders monies at the actual repayment. Now, ALL borrowed money is “stressed” in their calculations.

No more discounts
If you have more than one loan with a lending institution your mortgage broker will most likely have been able to negotiate a discount for you off the standard variable rate. Some property investors with a considerable property portfolio could expect to pay rates 0.5 to 0.75 per cent lower than the standard rate. Not anymore. While discontinuing this practice going forward, no changes will be made retrospectively. This blanket approach again might seem unfair, particularly if you have a strong history of always meeting your loan obligations. Before giving up entirely on the idea of securing discounted rates, speak to your mortgage broker. Those with strong relationships with lending institutions might be able to find some leeway.

No more lending to self-managed super funds
Not all lenders have adopted this approach but some have. There has been concern for some time that there have been property spruikers targeting the superannuation savings of potential investors. They have encouraged them to set up an SMSF with the express purpose of using it to invest in property. For many investors, this means that their superannuation fund is not adequately diversified and it may well not be the best structure for them to invest in.

As well as this, the legal compliance attached to borrowing to invest through super is stringent. Lending to SMSFs has sometimes been at a lower LVR and higher interest rates have applied. Now some lenders have decided to move away from this part of the market altogether and have chosen not to lend on property to SMSFs at all. As we said, an SMSF may not be the best structure in which to buy property anyway – something to discuss with your accountant and/or property adviser BEFORE you buy the property!

As you can see from this discussion some of these steps are sensible and many investors apply these limits on themselves. The difference now is that it is not at the borrowers’ discretion – they may not have a choice.

There’s no denying that record low interest rates mean there’s never been a better time to invest. But these are changing times, so make sure you seek professional advice from people who know your individual circumstances. Coming into a new financial year, the lending constraints need to be taken into account when re-aligning your property investing goals.

Many property investors subscribe to the notion that the best investments are close to capital city CBDs – but it may be time to update your parameters.

I often talk about property goals and how, if they are not set correctly, they can end up costing you money.

Three things need to be identified to set up property investment goals while avoiding losses:

1. The income goal you are aiming for, in terms of passive income
2. The time frame you are allowing yourself to reach this goal
3. How much of your cash flow you can afford to set aside to help hold your portfolio in the initial stages without negatively affecting your lifestyle

Now you have this worked out, you need to decide what fundamentals you will look for in an area so you can move quickly once you find an opportunity.

If you have attended one of those basic “seminars” – where developer stock is simply being off-loaded in the guise of education – the catch-cry is invest within a five- to 10-kilometre radius of the capital cities’ CBDs.

While this concept continues to work for some people, the definition of CBD has definitely changed over the years with decentralisation, the ability of people to work from home and the preference of manufacturers and businesses to remain in the suburbs, where rent is cheaper and logistics are easier.

Savvy property investors should identify these employment and manufacturing hubs, mentally categorise these areas as “central business districts” then apply the radius theory – rather than just focusing on properties between five and 10 kilometres of the 2000 postcode in Sydney, for example. Indeed, it doesn’t always have to be a five- to 10-kilometre radius: each hub has its own constraints, which will need to be identified.

Once you have done that, you then need to search for price points. As an example, if new two-bedroom units are selling for $350,000, it may pay to search for comparable, much older established units within a certain radius of this development, for a minimum of $100,000 less. This will allow you to get some more surety in terms of growth and you will be helped along by the more conventional fundamentals, such as infrastructure.

You also need to take a pessimistic view in terms of potential rental yields, so that there are no rude surprises in the end. Also, if you do have to renovate, do so with your tenant in mind.

You also need to think in terms of the worst-case scenario, where you have to off-load your property really quickly. There should be at least three to five real estate agencies servicing the area, with offices within reasonable distance of your property. You should also look at the worst case in terms of turnaround times for selling. If more than 70 per cent of the properties take more than 180 days to sell in that area, you need to factor that into your plan.

Once you have sorted these fundamentals, you can use this template to check the investment viability of the area. Once an area passes this test, you then can start greater micro research within the area.

To realise your investment goals and turn pipe dreams into economic realities, you need to stop worrying about what could go wrong.

If you want to get started in property investing, or turn your current fortunes around, you must do the following:
¤ Set realistic goals: They need to be tangible and directly related to property so you don’t just end up buying real estate, but actually progress towards your desired outcome – i.e. the reason for buying
¤ Research an area: How to decipher what’s really happening in an area as opposed to what statistical data tells you – i.e. the region to invest, in line with the property clock
¤ Micro-research an area: Being able to cotton on to changes that are imminent or already underway that will accelerate growth
¤ Make money on the way in: Buying below market value. It is all about revenue

Despite all these milestones in property investing, a majority of would-be investors rarely go beyond these steps. In short, they become information junkies who are paralysed by the fear of getting things wrong and don’t take that leap. The common fears I come across when I deal with would-be and first-time investors are really irrational when you take an in-depth look.

One of the mistakes would-be investors make is equating making mortgage repayments on an investment property to that of owning your own home, with the expectation that as the owner, you would have to come up with the whole of the mortgage repayments.

In their over-analysis they forget that the tenant contributes to a majority (if not all) of the mortgage repayments – provided, of course, the investor has purchased well and adhered to sound investment principles. Naturally, you do have to have a contingency for all other associated expenses, including vacancy.

Would-be investors can also get caught in what I call “analysis paralysis” – they think they have to do everything themselves and fear that they do not have the skills.

In my early investing life I was a victim of this. I was presented with a three-bedroom villa that had cigarette stains on walls and the carpet was, well, non-existent. It was being sold for the price of a two-bedroom villa because of its condition. I agonised over the decision to buy or not for two weeks and eventually the agent sold it to another astute investor.

What was I agonising over? How to paint and replace carpet? At the time it appeared overwhelming because I had forgotten the ‘why’ – why was I investing? Had I answered that question, the how and who of the equation would have been taken care of.

In life, people agonise over decisions, afraid of getting things wrong. They eventually make the decision, but they are still wary of implementing the changes.

In my office is a picture of five frogs on a log, with a big numeral “5” superimposed, given to me by my seven-year-old daughter. It is very pertinent. The question at the bottom asks (in typical seven-year-old language) “Five frogs sitting on a log, two decided to jump, how many left?”

The answer of course is five!

And the moral? Once you decide on a course of action, having addressed the milestones outlined in the previous articles, take the leap.

Too often, investors stick to the same strategy without realising it could be harming their portfolio’s growth. Here’s how to secure your portfolio now and into the future.

As investors , we often get into a rut, and keep buying investment properties without re-evaluating our purchasing criteria based on the changing market and our evolving portfolios.

When evaluating your portfolio, you need to take into account where you are now and whether the initial goal you had set in terms of end income is relevant anymore. Does it perhaps need to be adjusted because of life circumstances, or a clearer vision of where your investing could lead you?

Another thing to re-evaluate is whether, by design or otherwise, the types of properties you hold are heavily weighted to one particular type (for example, units or houses) and/or concentrated in one or two areas. I have seen, time and time again, budding and seasoned property investors significantly restrict their ability to get to their income goals by either:

* Buying property continuously as they confuse ‘activity’ with ‘results’
* Sticking to one type of property without evaluating each opportunity for what it could do for the longevity of the portfolio
* Failing to re-evaluate a strategy to see whether it still makes sense in the portfolio given its present fundamentals and cash flow. There could be strategies available to you now that didn’t make sense in your early purchasing stages (for example, constructing granny flats to increase cash flow)

When you are investing, it is important to re-evaluate your portfolio, and the strategy being used, to ensure that it does work in the current market, and also to discern whether there are better ways of achieving the same result.

It’s also important not to forget about the financial structures you have in place.

With the current rumblings about investors potentially being charged a higher interest rate, and other changes being flagged to help rationalise the property market, I have taken steps to protect my portfolio’s position.

How have I done this? I have locked in my interest rates for all my properties for as long as possible, all for rates below five per cent. This helps future-proof my portfolio, especially for those properties where I don’t anticipate paying down the debt any time soon. Of course, I don’t want all of my loans to come back to variable at once, especially when they may come back to variable in a high interest rate climate, so I have staggered the timeframe.

So, to future-proof your property portfolio, you need to do the following:

* Evaluate the need to continue buying, and buy only properties pertinent to your goal
* Ensure certainty in terms of finance by locking in your rates well below the current standard variable rate, ensuring you take the goal for that particular property into account

* Don’t be afraid to sell down if it allows you to catapult forward with freed-up equity (seek expert advice first!)

Re-evaluate your strategy constantly. If it is working, don’t change for the sake of changing, but if adjusting it slightly will get you a better result, don’t hesitate.

Finally, constantly educate yourself, and don’t confuse activity with results!

It is important under current market conditions that property investors stay calm and do not get caught up in the hype. Here’s what you need to know before you buy.

In 2015, activity in the property markets in Sydney and Melbourne in particular has got off to a spectacular start – encouraged to a great extent by the early cut in interest rates and continued affordability of borrowing. In Melbourne, CoreLogic RPData reports 1,149 auctions were scheduled for the second weekend in March, 64 more than for the same time last year. Clearance rates have been consistently above 70 per cent. In Sydney, we are hearing reports of even hotter markets as buyers face strong competition in the frenzy to jump into an escalating market that has pushed the median house price to $900,000!

It is important, under current market conditions, that property investors stay calm and do not get caught up in the hype. The main way to do this is to research markets and conduct your due diligence on properties thoroughly. Three areas of research that can help you make reasoned decisions are:

INFRASTRUCTURE RESEARCH
It is important to invest in an area that has potential to affect capital growth in your property. Such areas have growing populations, strong employment opportunities and a council that is investing in infrastructure for the long term. Even if an area is buzzing with market frenzy, if your research shows that it doesn’t meet these criteria, then it is probably not a good place to invest. Hype cannot overcome the consequences of industry closing down, families moving away and a council that is short-sighted and reluctant to invest in local infrastructure.

RIPPLE EFFECT RESEARCH
Of course, sometimes a buoyant market can lead you to research an adjoining suburb or area that is yet to get caught up in the hype. This is known as the ripple effect. The next suburb to a ‘hotspot’ is still close to all the amenities and attractions, just a few kilometres further away. It may be that you need to cast your net wider when your research finds a good investment area but buyer frenzy is making the properties overpriced. Don’t give up on this area completely, just move a little further outside of it. A good way to find a quieter market is through the realestate.com.au ‘buyers on the market’ data. In each suburb it reports the numbers of buyers looking at each property on the market. If these numbers are high, move on (but not necessarily too much further on!).

VACANCY RATE RESEARCH
Remember that as an investor, capital growth is important but so is cash flow. A vital part of your research should be vacancy rates and rental returns. When a market is too hot, and competition is pushing prices higher, it’s very sobering to crunch the numbers. What is the rental return as a percentage of your purchase price? Is there an oversupply of rental property in the area and therefore a strong possibility that you will experience extended periods without a tenant, and be forced to reduce rents to compete for the dwindling tenant pool? This area of your research must not be overlooked.

Don’t allow the hype in a heated property market to lead you to take shortcuts. When interest rates go up (as they eventually will) you don’t want to be holding property that you overpaid for and can no longer afford to keep.

Using equity to invest in property isn’t just for those who already have multimillion-dollar portfolios. If you buy well, having just one investment property could be all you need to catapult you into your next few purchases. You might not have any investment properties yet, but you could be sitting on a goldmine disguised as your beloved owner-occupied home.

Equity is for everyone – it’s a tool that, provided you use it responsibly, can enable you to continue growing your portfolio, even in the absence of cash savings.

Sam Saggers, CEO of Positive Real Estate, says investors with multi-property portfolios use equity to create a domino effect with their property acquisitions.

“Let’s say we’re just starting out and we’ve got $35,000. We put that $35,000 in the bank. After a year the bank calls us and says ‘Well we’ve still got your $35,000, but things have gone really well here at the bank, so here’s another $35,000’.”

“Now that’s pretty unbelievable – but if it were to happen you’d put all your money in the bank. Of course the banks don’t do that, but property does and your job as a property investor is to choose an asset where you’re going to put your deposit into the deal and after a period of time – usually one, two or three years – you recycle your deposit, in this case the $35,000, in the form of equity.

“You’re looking to put your cash into a deal and pull it out. The number one reason why a lot of property investors become successful is they choose properties where they can grow equity. And by growing that equity of course they create a nest egg to invest in other assets. Equity is the key to being a great property investor.”

Mr Saggers explains that a lot of Australians over the past few decades have been fortunate enough to create accidental equity, but if investors know how to use it properly, they can surge ahead of the pack and create a self-sustaining portfolio.

“More people create equity through luck. They buy a property – they don’t know where they’re buying, they just buy it because they like it. They then hold onto it for long enough that it creates equity.

“Unfortunately in Australia today, there’s a lack of financial responsibility and more people spend their equity on the wrong things – they buy a car, they go on a holiday. They don’t invest it wisely.

“So you need to care for your equity, because it’s actually your nest egg for the future. If you can work out how to move it around the markets, and make it work for you, I can tell you, equity will become your best friend.”

Investors often think they’ve nabbed a bargain if they secure a property for below its original listing price, but all may not be as it seems.
Getting dollars off the listed price does not guarantee that a property is below market value.

Quite often, investors turn cartwheels when they have been able to negotiate tens of thousands of dollars off a property’s listed price, thinking that they have been able to snatch a bargain. While this may be true in some cases, in other instances the property was simply overpriced to begin with.

So how do you ensure that you are actually paying below the property’s market value?

Well, first you need to know what market value is for that type of property in that locale. Once you’ve determined this, then you can strive to get properties that may have opportunities wrapped up in problems, and find simple, cost-effective ways to solve the problems to realise the true value of the property.

So what are some tell-tale signs that you may be able to get a property well below its potential value?

PRESENTATION
Most would-be and experienced investors will make a judgment on a property just because of the way it is kept or even smells. The cause of the smell could be something as simple as leaking pipes under the house, which would be easily solved. A great example of properties with presentation problems, but solid investment potential, is a hoarder’s house or somewhere with really untidy tenants. Often the cleanup is very easy and you are rewarded with an increase in the property’s value. Now that the problem has been solved, the property will appeal to a larger group of people.

HIDDEN POTENTIAL
With the right advice and knowledge, you should be able to unlock a property’s true value potential – whether it’s by adding another bedroom without reducing the living space or knowing who to approach to realise the property’s maximum development potential.

An example of this is a property I helped one of my clients buy in Campbelltown, NSW. The property was marketed as a “Hall” as it was being used by a chiropractor, who now wanted to sell it, and there were no bedroom partitions. A simple council search revealed there were no issues with converting this into a two-bedroom house, but the real coup was its development potential. Under our guidance, the client is now in the process of getting approval for a five-dwelling development. We have helped to substantially increase this property’s value by Tapping into its hidden potential, which was not picked up by either the agent or the general public.

POOR MARKETING
The above property would fit this category as well because the property was marketed as a “Hall”, which considerably reduced the buyer interest in it. Poor marketing can also extend to the photos of the property used in the advertising which may not show the property in its best light.

GETTING TO A PROPERTY BEFORE IT HITS THE OPEN MARKET
This is no secret: if you are able to get to the property before competition heats up, there is a greater chance that you will pay a reasonable price for it. The best way to do this is to spend years cultivating relationships with agents. They will then come to expect that if the property is good enough, you will always be in the market to buy.

So why do you need to buy below market value? The answer is pretty simple: by doing so, you are able to protect your deposit and have that added safety net of making money on the way in – so that in the event that things don’t work out for you, you won’t lose money when you exit the property.

Successful property investors need to learn to recognise fact from fiction. Here are some common myths that have evolved around how to profit from property.

More Australians accumulate wealth through property than any other asset. According to last year’s CoreLogic Capital Assets report, the Australian residential property market was valued at an estimated $5.2 trillion in January 2014. Today that figure would be even higher. It is hardly surprising, in such a large industry, that myths and rumours abound. Often this is just because no-one bothers to challenge industry claims – sometimes, though, myths around property investing can be used to deceive novice (or even experienced) investors.

Successful property investors need to learn to recognise fact from fiction and challenge what they read or hear in the media or from ‘experts’. Here are some common myths that have evolved around property investing and we challenge these below.

Myth #1: You only make a profit when you sell

You hear this myth, in relation to defending a sale price, or from real estate agents keen to list your property for sale. This myth is false on two fronts. Firstly, you can make a great deal of profit on your property if you buy well. The lower the price you pay for a property, the greater and quicker the capital gain. This brings us to the second falsehood, you don’t actually have to sell your property to realise the profit. It is the equity in your property that is important and lenders will allow you to increase your borrowing, by leveraging off equity in your existing investments, to buy more property. In fact, selling to take a profit can be a mistake as you will most likely be liable for capital gains tax. It could be much better to leverage off the equity and avoid selling until you are in a lower tax bracket (when you reach retirement age) or not at all.

Myth #2: I’m an adviser, trust me

Recently, two of Australia’s big banks have been hit by scandal, as unscrupulous financial advisers have been uncovered. The property industry is not immune to poor practice either. With over $5.2 trillion in the property market it is inevitable that there will be some ‘shonky’ advisers who see the potential to exploit naïve or trusting investors. When you deal with property investment companies you should find out if they are members of PIPA – the Property Investment Professionals of Australia – and whether they have CURRENT real-life experience in the strategy they are helping you implement. It is important to seek out good advice, find referrals and learn to distinguish advice from spruiking and sales talk. Just because someone tells you they are an ‘expert’ adviser, doesn’t mean that they are.

Myth #3: Property prices will always go up

You can be forgiven for believing that property prices always go up. Indeed, between 1996 and 2010, real prices increased by 77% and 178% for Sydney and Melbourne, respectively! However, property is a cyclical investment, meaning there will be periods of no growth in some areas of the market, and after a boom, there often comes a bust. You only need to look at mining towns around Australia at the moment – much of the property in these areas has fallen by 50% since the highs of 2012. The Australian property market comprises hundreds of ‘markets’ – CBD markets, suburban, outer suburban and regional. Collectively, over time, the overall value of property increases, however, individual areas can show low or no growth from time to time or even sharp corrections.

Myth #4: Rental guarantees secure your rental income

Most property investors look for strong cash flows from their investments and they are tempted to accept promises of rental ‘guarantees’ at face value. Rental guarantees promise an attractive level of rental return from day one, usually for the first 12 to 24 months of ownership. Rental returns are usually attached to newly-built properties, off-the-plan properties or specialist niche- accommodation, such as student or holiday rental property.

It is, however, a myth that rental guarantees offer surety of ongoing strong tenancies. Often, you find that the vendor or developer offers a rental guarantee that they are prepared to fund themselves, and they inflate the purchase price to cover this cost of business. To find out if this is the case with a property that you are considering, carry out your due diligence thoroughly. Research other similar properties in the area, talk to property managers and establish that the rental guarantee is at market value and it will be easy to achieve the same rental return after the rental guarantee period has expired.

In conclusion, as we head into a heated market in most areas, I am seeing increasingly new investors afraid to “miss out”, and often turning a blind eye to all the warning signs. If we stuck to some basic due diligence and didn’t get caught up in the hype, we would then not be caught up in a purchase that we may come to regret down the track.

Property investing is a team effort, but who are the key professionals who will help you achieve the portfolio you want?

Watch any major sporting event – and there have been many to choose from this summer – and you’ll see that the winning team has a variety of players, with different skills, all playing to their strengths.

Property investing is also a team effort. You can’t undertake all the tasks involved in property investing on your own. You need professional help on your side. Members of your team will have a range of specialist knowledge, experience and qualifications. Keys players to have on your investing team include:

• A mortgage/finance broker

It is impossible to be across all the loans and products in the lending marketplace. You need an experienced finance/mortgage broker on your winning team – preferably someone who is a property investor themselves. A good broker will source the best rate and terms to finance your investments. You will be able to rely on your broker to be proactive and review your finance on a regular basis to ensure you have the capability to grow your property portfolio.

Naturally the idea, and what a good mortgage broker who specialises in property investment finance will source is not based on interest rate alone, but a holistic solution in line with the end goal for that particular property.

• A buyer’s agent

A good buyer’s agent is an invaluable member of your investment team for a number of reasons. He or she will take the hard work out of property research and due diligence, sourcing areas to invest in and properties to consider, that meet your investment criteria. Buyer’s agents have strong connections in multiple locations and they are uncovering potentially profitable investments for clients on a daily basis. They are also skilled negotiators who will secure the best price and terms for your purchase. They have the ability to take the emotion out of the purchasing process. They crunch the numbers and walk away if an investment is not going to deliver the required returns. Don’t underestimate the value of having a buyer’s agent on your team, they can impact greatly on your return on investment.

Remember, just like in sports, where you may get someone who is really high profile in the media by way of advertising and commentary, they may be all marketing, and no results.

You need a buyers agents who are successful themselves and still actively investing, and importantly, investing with the same strategy as you would be implementing.

There is no sense engaging someone who specialises in off the plan properties when your strategy calls for established properties

• Solicitor or lawyer

Contracts of sale and associated clauses can be complex and need translating into plain English! It is essential that you have all relevant legal documents checked by a legal professional before you sign on the dotted line. Mistakes can be costly if, for example, the contracts are in the wrong names, or some clauses don’t give you an ‘out’ if your due diligence finds things you are not comfortable with. Your solicitor will handle the settlement as well. Again, try to find a solicitor who is a property investor him or herself as they will understand the investment mindset.

It certainly also helps if they have open channels of communication and preferably a dedicated conveyancing arm for that state.

• Insurance broker
Insurance offers property investors protection against risk on a number of fronts:

• Risk of malicious property damage
• Risk of accidental property damage
• Risk of tenant default
• Risk of landlord’s earnings capacity (i.e. if you lose your job, fall ill or have an accident that prevents you from earning enough to service your borrowings).

Particularly when you start to invest in multiple properties, having an insurance broker on your team who can negotiate a better deal on your behalf, will be a real asset .Often the insurance the bank may offer as part of their proposition may be cheap but may not cover all of the events. It pays to go through the fine print.

• Property manager

Smart investors never underestimate the value and contribution of a good property manager. They will source the best tenants and conduct the application process and thorough reference checks; they will carry out regular inspections and report back to you with written and photographic feedback; they will manage all repairs and maintenance issues; and of course, they will forward the rent to you!

As I said in the beginning, it is a team effort, and when the whole team is working together, less problems arise. Like any sport, when a particular team member is out of form, they are either rested, or expectations set up to get them back up to speed.

Most investors already know they should remove emotion from the buying process, but they may not be aware just how much can go wrong if they let feelings, rather than the numbers, dictate their decisions.

February is the key month in the romantics’ calendar but the golden rule of property investing is: “Never fall in love with a property”. Here are five good reasons why:

1. You won’t be living in the investment property so it doesn’t have to be to your taste

Instead, an investment property should appeal to a wide pool of potential tenants who fit the major demographic rental group in the area. This could be dual-income professionals, seeking two-bedroom, low-maintenance apartments close to transport. Or it could be families seeking four-bedroom, two-bathroom homes with a yard for the children, close to schools. You don’t have to love the property, as long as they do!

2. It is first and foremost an investment

You are investing in property to generate a rental income return where the negative cashflow needs to be manageable. In short, you need to know upfront how much, if anything, the property will cost you to hold. So let the numbers do the talking, not the hype.

3. It must be practical and easy to maintain rather than ‘attractive’

Successful investors look for no-frills, low maintenance properties. The best properties might be considered a bit ‘ordinary’. When you invest in property, you are responsible for maintaining the property and The Gardens and all the costs involved. The more you spend on upkeep and repairs, the lower your net returns. Some investors shy away from older properties, but so long as the “bones” of the property is good, unending repair bills wont plague you.

4. You are prepared to pay too much for it

You may get caught up in the exuberance of an auction and end up paying over budget for a property you ‘love’. Through careful research, successful investors find out what the property is actually worth and fix a limit on what they are prepared to pay for it. If someone else is prepared to pay more, or the vendor isn’t prepared to sell it for that price, then they move on to the next property.

5. You lose your negotiating power

If you are emotionally attached to a property you lose your power as a negotiator, because you are determined not miss out on buying it. The vendor will soon pick up on this and they will not give you any concessions when you are negotiating the price and terms of the sale. The property therefore ends up costing you more. If you take emotion out of the negotiating process, and are prepared to walk away, then you will be in a much stronger bargaining position. Remember, what you pay for the property in the first place can have a big impact on your overall return on investment.

At the end of the day, to be successful, let the numbers do the talking. In how I evaluate properties for either myself or for my clients, I don’t fall in love with the property, I fall in love with the numbers. The rule of thumb I use is “numbers first, pictures or inspections later”.