Ben Kingsley – co-author of the best-selling The Armchair Guide to Property Investing and co-host of The Property Couch podcast – teaches Aussies how to become successful property investors, and says it’s all about research and realism.
One of Australia’s leading experts in property investing, Kingsley, the founder and managing director of wealth advisory company Empower Wealth, breaks down the five steps.
It seems obvious, but the first step is to separate “surplus money” from cash already committed within a household, Kingsley explains.
Would-be property investors need a realistic view of what money they actually have to commit. A pragmatic budget from the get-go is key.
“People should look at property as a medium to long-term investment, not just think ‘oh I have a bit of surplus at the moment, I’ll go make a quick killing in property’ which is essentially speculating and is dangerous,” Kingsley says.
When you’re doing the sums, always project forward, Kingsley says.
Investors need to understand what they can afford now as well as into the future as property investment is a medium or long-term commitment.
Next comes choosing which style of investment is best as different properties perform in different ways.
Growth looks purely at how much the value of a property might rise over time – and can be “realised” by selling it – while a yield investment refers to how much a property can make an investor in rent ongoing.
A property’s gross rental yield is calculated by taking the annual rental income, dividing it by the property value, and then multiplying it by 100. For example, a property which earns $375 a week in rent, for a total of $19,500 a year, on a property purchased for $450,000, returns 4.3 per cent. Net yield figures take into account expenses.
Future capital growth can make investors many hundreds of thousands of dollars more over the years. But which approach is best is a personal choice.
“If you’re looking to the long-term, which is indefinitely, and you’re getting fantastic cashflow from a property, unless you need cash to pay down debt, why would you sell the goose that’s laying the golden egg?” Kingsley says.
While it’s easy to “get seduced by all the beautiful properties on realestate.com.au”, serious property investors research, not aimlessly search, Kingsley says.
“Don’t get caught up just browsing; you need to be focused on the fundamentals of supply and demand and finding an area where capital growth is possible and the value will go up. Location is almost always everything,” he says.
“You’re actually researching human behaviour. Why do people want to live in a certain place? Is it amenity, prestige or something else? What makes it valuable? That’s what you’re looking for.”
Understand “what your money will buy in an area”, then go about finding the best asset in that location, Kingsley says.
“The best investments are always those properties which have owner/occupier appeal,” Kingsley says, so it’s logical to look for that when property hunting.
“If lots of people love a property, for whatever reason that might be, it becomes an aspirational asset, a bit like fine art. It’s appreciated and is desirable – and then becomes an asset that grows in value,” he says.
Investing can be complex and sometimes professional advice is money well spent, Kingsley says.