5. 3. YIELD






7. 1. L O C AT I O N








Financial advice, at any stage of your life

Dear Reader, We are delighted to provide you with a free copy of this ebook. We hope that some part of what you read in this ebook is beneficial and of service to you. As financial advisers with years of experience, we help people make educated financial decisions throughout various stages of life. Ring us today on (02) 9248 0444 to make an appointment or directly via www.wealthadviser.com.au Introductory meetings are free and carry no obligation. Best regards, Frank Paul CEO Wealth Adviser


research is a huge part of the process. you are on the right track towards successful property investment. at any stage of your life. Financial advice. As anyone in the business will tell you. When we talk about property investment we are referring to buying and holding for the long term. as in 10 years or more.IN T RODUC T I ON Congratulations. Prepared by WEALTH ADVISER . One point we would like to clarify before we go any further is that we are investors rather than entrepreneurs. and this book has been written with this in mind. rather than entrepreneurial activity where one buys with a view to renovate or develop and then sell. If you’re interested in finding out more about how to invest in property this book will serve as a primer on what you need to start thinking about.

Essentially though. . because your prospective tenants and most of your future potential buyers – owner-occupiers – will care about these things too.’ ‘there’s a school within walking distance. at any stage of your life. In residential property investment. location matters in terms of what it means to the market a prospective property is in. and comments such as ‘it’s a block from the beach. Prepared by WEALTH ADVISER Financial advice.1. more strategic level. an investor needs to consider location on a higher. LO C AT I O N Think of location.’ or ‘the train station is two blocks away’ probably come to mind. As a property investor you also need to consider location in these terms. That’s because a person looking for a place to live typically has these considerations at the front of their mind.

and what that market is likely to do in future. at any stage of your life. Pay attention to how close a prospective investment is to basic amenities. Prepared by WEALTH ADVISER .What do we mean by this? If you’re thinking about buying an investment property. Just as house prices overall in your suburb rise. because real estate markets are defined by specific geographical areas. You can buy ‘junk’ in a rising market and it will not matter because everything ends up going up. Let’s say your recently purchased investment property is a duck. today you would be sitting on some very expensive ‘junk’ today. but focus on which specific market the property is located in. As it rains and more water enters the pond. Make sure the specific market you are in is healthy and vibrant. and other aspects of its location. If you’d bought ‘junk’ in the Eastern Suburbs of Sydney 10 years ago. Gains in real estate investment are about the water line rising in your pond. consider the location in terms of finding the right market to invest in. that’s only the start of the decision-making. We’re not advocating buying property that is below par. floating on a pond. because if it rises – even if you have got some other decisions wrong – you are going to be dragged along with that specific market’s overall performance. We’re only suggesting that your first consideration be the specific market your property is located in. So if it’s deciding between Sydney or Brisbane. so does the value of your house. and that pond is the suburb you’ve bought in. Financial advice. If the area you’ve bought into is increasing in value. it’s likely your property will too. and so does the duck. the water line rises.

and when to sell. and the market doesn’t behave itself. you’re in trouble.2. who make a very big deal about when to buy. Financial advice. and in real estate this certainly can hold true. if you overpay just slightly for a property. but it all depends on what your objective is. Timing is often the primary focus of real estate entrepreneurs. Prepared by WEALTH ADVISER . In this case. Indeed timing is very important if you are going to be in the market for only a couple of years. T IM E A ND T I M I N G They say timing is everything. at any stage of your life.

so the fact that they overpaid becomes irrelevant. and to find a fair-priced quality property in an area with good growth potential. Let’s face it. no one has the ability to see into the future. timing is much less of an issue. Time has reduced the importance of timing. If they’d overpaid by 10% (it was actually worth $27. rather than an entrepreneur. If you overpay then it’s obviously going to take much longer to make up for that mistake. The classic example of this is your typical mum and dad. would it matter? Today that property is worth $600. As long as you’re paying fair value.000. but what you really need to consider is how long you’re going to be holding onto a property. Prepared by WEALTH ADVISER . location). the focus needs to be on paying fair value for a property and buying in the right market (which refers to our first consideration. If you pay a fair price for a good property in a market with the potential for growth and you are holding it for the long term. If you hold a property for 10 or 20 years. don’t fret about timing. Focusing on buying a fair value property is more integral to the success of a property investment than just trying to get the timing right. or to pick the bottom or top of the market. timing becomes less and less important. timing becomes a secondary consideration.000. That’s because there’s an inverse correlation between the term of the investment and the need to get the timing right. time will take care of the rest.000). who bought a property 30 years ago for $30. You do have the ability though to implement a strategy which views time in terms of duration. at any stage of your life. So the focus should be on finding a property of fair value. Timing matters. If you’re an investor. and then holding it for the long term. Buying at the right time is a secondary consideration. Financial advice. Once you’ve decided to invest long-term.As investors though.

Financial advice. because it often leads to inaction. the message to investors is clear: don’t focus all your valuable time and energy trying to forecast the troughs or peaks of the real estate waves. and that paying fair value for a property in a carefully selected market is what matters. Now we’re not going to tell you to ignore everything we’ve said about holding for the long term. and an unnecessary delay of a purchase.One of the negatives of excessively worrying about getting the timing right is the bargain-hunting mentality. because they are still trying to squeeze out a bargain every time a property comes up. The bargain-hunting buyer expends huge amounts of time and energy looking for the cheapest deal. find someone who can advise you. the market’s gone up 10% and the bargain hunter has missed out on growth in the market. be aware of the market you are entering into. and two to three years later no property has been purchased yet. but it should be said that no amount of time can save you if you’ve entered into a market you haven’t properly researched. Holding for the long term is an excellent strategy for an investment as illiquid as real estate. When it comes to timing. A long-term investor understands that real estate on average increases at or faster than the rate of inflation. Buying fair value and holding for the long term is the essence of no-frills real estate investment. Meanwhile. it’s not always going to save you if you’ve chosen the wrong market to buy in. If you don’t have the time to do the necessary groundwork. however. at any stage of your life. but first and foremost. You must be armed with as much knowledge as possible in order to make a good decision. Prepared by WEALTH ADVISER .

come into the picture and buy houses in town. which is fairly high for residential property. As the yield goes up dramatically. This works out to around 10% yield. Does high yield alone make this property a smart buy? Not necessarily. Yield is expressed as a percentage. at any stage of your life. it brings a raft of new workers with it. Prepared by WEALTH ADVISER . because ‘the higher the yield the better’ is not necessarily always true.000. It pays to be aware of the dynamics behind high yield. To calculate yield. spurred by the high yield. An example of a situation where high yield alone may not be enough for a sound property investment is in recent trends in some mining towns around Australia. Financial advice. house prices start to follow. as other investors. These new temporary residents need somewhere to live. paying $400 per week to rent houses that are worth around $200. When a mining company sets up a local division of its operations in a small town. YIE L D The higher the yield the better. for example.3 . total up the income you will receive from a property in a given year and then divide this by the value of the property. right? Certainly this is the traditional take on yield. so the company might lease 200 houses in the one town. This unnaturally inflates the market.

Financial advice. yield has been rising and is approaching close to 5% at the moment (2008). A little knowledge can be a dangerous thing. To determine this. Generalisations such as ‘high yield is always good’ and ‘low yield generally means overpriced real estate’ should never be taken at face value. an investor is able to strike some sort of equilibrium where a property with a reasonable yield (which then keeps the costs down of owning it) also has good capital growth prospects. For example. As an astute investor you must have an understanding of what the dynamics are behind abnormally high yield. waterfront real estate has a long history of low yield. So the goal is to find a balance. High yield must be treated with caution because it can come at a big cost to growth. Prepared by WEALTH ADVISER . you’ll need to do some research. and then wanted to sell after the company had left town. gain local knowledge. which indicate continuing future demand. Rents return to normal in the area and house prices follow again. educated mind to see through it.The problem arises when the company decides to wind down or pack up its operations. and understand what trends are active in the relevant market. say five years down the track. for example. with yield changing from area to area. If you’d been ‘unlucky’ enough to buy a property in this town at the peak of the price rise. or high capital growth would both be very unlikely. This bodes well for the long-term capital growth prospects of the city. this time going down. in certain situations. but that does not preclude it from being a good investment. outweigh the deficit in yield. The aim is to find an equilibrium between yield and capital growth. In the ideal scenario. This is driven by a number of factors such as an influx of new immigrants and a shortage of dwellings. in Sydney. and it takes an experienced. You also must consider that markets are determined geographically. at any stage of your life. The potential for capital growth of a waterfront property is so significant it could. the prospects of either high yield over the long term.

You buy a property for half a million dollars and then 10 years later. When considering the growth prospects of a specific property.4. Financial advice. G R OW T H Capital growth refers to the increase in the value of your property over time. it helps to begin by identifying what drives property growth in general. but particularly in residential real estate. at any stage of your life. capital growth is just as (if not more) important. Prepared by WEALTH ADVISER . it’s worth a million dollars. yield is part of the property investment equation. As discussed earlier.

Financial advice. and it makes that house more expensive. Supply covers both existing houses and new houses being built. in other words people wanting houses and the availability of houses. but if the cost of building a house goes up then so do house prices overall. Demand includes the existing population and the new population arriving or departing. at any stage of your life. but as intelligent investors. we would not stop our analysis of the region here. demographics play a big part in the supply and demand equation. As builders’ salaries and materials become more expensive. even if they were built for less. The demand for housing is strong. Naturally. This price rise spreads to every other house around.First and foremost are the forces of demand and supply. Prepared by WEALTH ADVISER . because supply needs to be considered as well. Demand and supply can be static. the price of building one house goes up. Inflation is another factor which can put upward pressure on house prices and result in capital growth. and therefore in the capital growth potential.

at any stage of your life. it has doubled for one. you could have had dropping interest rates. and/or the supply of money. and therefore capital growth. so prices do not move. Not long ago.Another factor which impacts property prices. So if you’re looking at a property that has doubled in value. but times have changed. is money supply. All capital growth can be explained by supply and demand. the more money banks will lend based on the way their formulas work internally. In some instances 100% can be borrowed. Financial advice. Interest rates affect money supply – the more they drop. just fewer people to buy houses. two or all three of these reasons. finance product innovation and an increase in supply of money. Prepared by WEALTH ADVISER . On the other hand. The invention and engineering of financial products also affects money supply. and on the whole it has become much easier to borrow. no one would have dreamt of lending you more than 80% of the purchase price to help you buy a property. inflation.

so there is no absolute truth when it comes to aspect. The accepted truth in Australia is In a recent development of 20 units in Maroubra. higher capital growth or both. Prepared by WEALTH ADVISER . A north-facing aspect usually means more direct sunlight. which may well have had more potential for higher yield. that north-facing is good. Every property needs to be taken on its merits. we would have missed out on these properties in the development. If north-facing only was our stipulation. for more of the day. quite a few of the units faced south but they looked over the water. is it a matter of north or nothing? A SPE C T Aspect refers to which way a property faces. in Sydney’s east. at any stage of your life. When considering any property then.5. Financial advice. What really matters is how aspect affects a particular property and what that means in terms of brightness and sunlight.

east or west. You may have a general idea of what is desirable in an investment property. but there is no substitute for being out in the field. Viewing a property at different times of the day is a good tactic. Every property needs to be assessed on an individual basis. Shying away from anything other than north-facing. If you don’t have the time to do the legwork yourself. Prepared by WEALTH ADVISER . and not everyone wants to have to keep the blinds drawn and the air conditioning on all day. for example. Financial advice. at any stage of your life. but what this means for a property given its design. as is looking out for areas with minimal light and the potential for mould and dampness problems. doing the research. south. What really matters is how the design of a property interplays with the direction it faces. A north-facing property that receives direct sunlight all day can sometimes receive too much sunshine. and how this plays out it terms of light. When considering aspect it’s not just a matter of north. could mean you potentially miss out on a more suitable investment. consider using the services of someone who can do it for you.

That’s being entrepreneurial. Prepared by WEALTH ADVISER . at any stage of your life. pay for land value. and it makes for great dinner party conversation. Financial advice. build a brand new house on it. demolish. NEW VE R SUS O L D You and I buy a renovator’s delight. Buying a new property. but it can be a much better way for someone with a day job to invest intelligently. and make lots of money. holding it with minimal capital expenditure and forgetting about it for 10 years may not make such great conversation.6.

When you sell the property. becomes less valuable with time. knowledge and dedication. The land itself is an appreciating component (assuming demand is fuelled by immigration and other factors). One goes up in price and one goes down. and then gets upgraded with a new bathroom. so it only becomes more valuable with time. The physical structure. on the other hand. One thing that does not get measured in real estate is the spending involved in keeping a place up to scratch. at any stage of your life. and bricks and mortar (the physical structure). what happens is that the structure deteriorates. it is worth considering why a new property can be a much smarter. it’s depreciating. When you pay half a million dollars for a property you are buying two things: land (or space). but many people either can’t or don’t want to spend their weekends renovating. known as capital expenditure. Financial advice. If you have the time. Prepared by WEALTH ADVISER . a new kitchen.Not everyone has the time or desire to spend endless weekends renovating a property. If you were to buy a property and not spend a cent on it for 25 years. cheaper and more carefree way of investing in real estate. and more. new floors. you can imagine how deteriorated it would be. Let’s begin by understanding what goes into the value of a property. then you may want to stay away from new. If you are one of those people. So property has two components: land value and physical structure. all you are going to get back is the land value. In reality. But this is not typically what happens.

For example.When a half-million dollar property becomes a million dollars. people associate new with costing more.000 per year to ‘run’ if it’s old. But if you’re an investor after an ‘invest and forget’ strategy. A new property also requires minimal or no investment of time. When median house prices are measured. you can forget you even have it. yet it’s not mentioned in any real estate data. and you’re able to buy a new. capital expenditure is not factored in. and it costs you next to nothing to hold. the ongoing holding cost of an old property is about three times the cost of a new property of the same value. at any stage of your life. sometimes even 10 years if you’re lucky. yet an estimated 90% of property investors buy an old property. and that is the value of buying new.000 per year to run if it’s new. Every year. It’s a significant amount of money. Old properties not only cost more to own. it might cost you $15. new makes sense.000. rentable property with good yield from day one. When the extra tax benefits of owning a new property are considered. but it should be. If you select well. what isn’t mentioned is the amount of capital expenditure that went into the property during the time someone owned it. and no calls from real estate agents about the hot water system or the plumbing. they often require more time and effort to own. It might be five or six years.000 for a new kitchen or bathroom. but not everything is as it seems. and their growth is documented. Financial advice. and $5. The costs of owning an old property are big. before you start having to spend $20. Why is this the case? One can only assume that when it comes to choosing old versus new. Buying new gives you a property with no capital expenditure for as long as possible. Prepared by WEALTH ADVISER . billions of dollars and countless hours are spent on improving the structure of investment properties. if you were to purchase an investment property around $500. An entrepreneur would never consider a new property because they would be looking for the opportunity to add value.

Because the apartments are so similar. In large developments there are almost always 10 others for sale. Financial advice. By willingly accepting a lower price than what their property is really worth. If you are considering buying an apartment that will be one of 200. Prepared by WEALTH ADVISER . at any stage of your life. it only takes one or two vendors who want a quick sale to bring down prices.7 . This is one of the risk factors to consider in large developments. the most desperate vendor determines the price for everyone else. these vendors cause a downward pressure on prices for everyone else. which is something investors often don’t think about when they are entering a property transaction. The size of a project matters because it can have far-reaching implications for exit strategy. SIZE OF PRO J E C T When considering an investment property. When this is the case. it’s worth thinking about what size of development a property is in. you’ll need to think about what that means if you want to sell your property down the line.

The risk of an investor ghetto is also smaller. but it should be part of the consideration process. they are driven by emotion. Small projects of 20 to 30 apartments are often the best size because the risk of competing for buyers is much lower when you are selling. Another reason you will need to consider size is because large developments can result in ‘investor ghettos.’ These are projects that have been predominantly sold to investors rather than owner-occupiers. Owner-occupiers create better prices for a number of reasons. so they are willing to pay more for a property. They will often be able to tell you how many owner-occupiers versus investors have bought into the project. Pride of ownership means they will also tend to look after a place better than renters. Financial advice. This is another situation where the selling price can be negatively impacted. One way of deducing whether you are potentially buying into an investor ghetto is by speaking to the developer of a project beforehand. at any stage of your life. A much better option is a smaller development that has a healthy mix of owner-occupiers and investors. In some instances it may be out of your control. Instead of being driven by calculators. Prepared by WEALTH ADVISER .

but it sure doesn’t cost you that to sell your property.O C CUPIE R S Understanding the characteristics of a property that make it easy to sell is an important yet unconsidered point when buying a property. at any stage of your life. R E S A L E TO OWNE R.8. Financial advice. You don’t consider exit strategy when buying shares because it costs $30 to sell your shares. Prepared by WEALTH ADVISER .

So if you are trying to find an investor to buy your property. negotiations. You are appealing to a much larger pool of buyers. money. heartache and stress. Down the track when you try and sell it. At any given time. at any stage of your life. Compare that to a unit in a small block. Prepared by WEALTH ADVISER . may seem like a good option at first. and it will make selling your investment property a lot easier. with its high rent during weekends and holidays. real estate commissions. you only have a small number of potential buyers. you may be looking for a needle in a haystack. and the remainder are investors. about 80% or more of buyers in the market are owner-occupiers. A holiday rental in a newly discovered resort town. would be enticing. Selling a property costs time. with transport to the CBD nearby. and generally with a better end result. The best way to deal with exit strategy problems is to buy something that an owner-occupier would be happy to buy later. So anything that can reduce that stress and increase the final price in your hands is good. for example. A serviced apartment. energy. however. Financial advice. on a quiet street in a leafy area of Sydney.

at any stage of your life. The value of that property is no longer the same – it has (presumably) increased in value because of something that’s happened next to it. has a certain value. This property. blue lake next to it. with nothing around it.9. INF R A ST RUC T UR E Picture a house in the desert. and not long after someone else comes along and builds a school and a road. just standing on its own. Someone else comes along and builds a shop nearby. Someone comes along and builds a big. Prepared by WEALTH ADVISER . All of these things affect the value of that property. Financial advice.

This one change could affect the whole face of the area. can grow substantially because of what is going to be around it. a suburban Brisbane unit. and what future infrastructure is in the works. the local council could have plans under way to turn an unsightly industrial zone into retail space. Financial advice. It pays to consider what existing infrastructure is nearby a prospective investment. including a supermarket. Prepared by WEALTH ADVISER . For example. school and road appearing nearby. for example. and increase the value of your investment. at any stage of your life. in the area where you are looking for a property.In the same way the house in the desert gains huge value from a lake.

Big infrastructure projects are a reasonable leading indicator for what will happen for the future of house prices in an area two or three years down the line. and negatively impact an area and the value of a house. at any stage of your life. Financial advice. the state government decides to build a $2 billion port in an area which was once purely industrial. So. A sharp increase in employment produces an injection of money into the area. You need to have the knowledge to be able to make a good property decision. More people will look for somewhere to live nearer to work. For example.Infrastructure also plays out on a much larger scale. Infrastructure can and does have a far-reaching impact on property values. Prepared by WEALTH ADVISER . For example. Infrastructure can also work the other way. which means either undertaking research or employing someone to do it for you. What that normally results in is a marked change in the whole area and surrounds. the addition of a tunnel or freeway nearby might bring down property prices in an area. it is helpful to know where and what infrastructure is in the pipeline. which puts upward pressure on housing.

Financial advice. You can go out and collect the information that you need.10. Reputable. or the local library. The more knowledge you have. knowledgeable and accessible property advice is not easy to find. at any stage of your life. the better the decision you are going to make. there are a lot of considerations which go into making an educated real estate investment decision. or you can get people to help you with the decision-making process. VA LUE OF A DVI C E As you’ve gathered by now. Prepared by WEALTH ADVISER . a get-rich-quick seminar. So what are some of the sources for advice? Your local real estate agent. are the mainstays.

State-based legislation. in their price range. bring expertise to the selection of it. with minimal stress and cost. this area has been tainted by many unwieldy. do not recognise property as a financial product. treating it as though it were any other financial product. investors and creditors. Call us today on (02) 9248 0488 to book an introductory meeting with one of our advisers. at any stage of your life.In Australia. Let us show you how we can help you make the right property decision. Unfortunately. Both are silent on how it should be treated and how it should be advised on. relative to other financial advice. and we believe we are on the cutting edge of delivering this new type of service. What we do is simple but not easy. which applies to real estate agents. Financial advice. as locating a good property requires extensive and exhaustive searches. Do you like what you see? We aim to provide a no-nonsense property advice service based on research and disclosure. A new breed of advisers is emerging and proactively filling that void. Because of this legislative vacuum. and help with its implementation. the property advice sector. Federal legislation and the Australian Securities and Investments Commission (ASIC). combined with expertise and local knowledge. in the past. Our objective for all of our clients is essentially to locate a good property. is largely unregulated. We are proud to say that we are part of this new generation. provide strategy around it. This means we research it. mainly covers the mechanics of a property transaction. and maximum profitability. which enforces company and financial services laws to protect consumers. bringing a planning and research-based ethic that is enshrined in federal law. it is very difficult to find a reputable adviser specialising in investment property. Prepared by WEALTH ADVISER . We voluntarily bring the same ethos we apply to financial advice to investment property. unregulated operators who have profited from the desire of everyday Australians to get advice on how to enter the investment property market.

com. 99 Bathurst Street Sydney NSW 2000 PO Box Q1470 QVB NSW 1230 Tel (02) 9248 0488 Fax (02) 9248 0433 E-mail infot@wealthadviser www. at any stage of your life.C ON TAC T DETA IL S Wealth Adviser Level 4.wealthadviser.au W E A LT H A D V I S E R I S A D I V I S I O N O F T H E M O N E Y T R E E W E A LT H A D V I S O R Y G R O U P Financial advice. Prepared by WEALTH ADVISER .

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