“There is one key trait that will determine if you will be a successful property investor, and that is your resilience,” according to Rick Collova, Director at PEB Group.
Resilience is your ability to successfully adapt to stressors and maintain your psychological well being in the face of change and adversity.
When you add property investment into your life, it requires your attention due to constant changing economic conditions, personal and family pressures.
You need resilience to get past these challenges and see the situation not from an emotional position but from a pure business position.
Avoid the "Short Term" Mentality
“You invest in property for the long term and many people simply forget that property investment is a long term strategy,” Mr Collova said.
“Often what we see is that people start panicking after 18 months saying they’ve made nothing on their property and they want to sell.”
“We have to remind them why they invested in the first place – to build long term wealth.”
‘We warn them not to sell for the wrong reason, just because the market has not grown as quickly as they envisaged.”
“Unfortunately some people still sell within the first three years, virtually ensuring that they make nothing on their investment once all the selling fees and other costs are considered,” he said.
People panic for no reason. They expect to make a big profit in capital gains in a few years and when it doesn’t happen they want out.
PEB doesn’t push capital gains and speculative buying, but some people still expect huge and fast results, it’s just human nature.
So when their property hasn’t appreciated much in a few years, they start to feel that they are missing out.
This is especially so when they hear of other people making over $100,000 on property in a just a few years.
However, such profits are the exception, not the norm. If you really want to profit from property investment you need to hold on to it for a longer term.
How the Extra Years Make a Big Difference
“As an example of the difference of how holding on for the extra years can make, in 2007/2008 we were selling quite a few properties in Victoria for $280,000 to $350,000,” Mr Collova explained.
“A few of our clients ended up selling within a few years. At that stage, in 2010, property in Victoria wasn’t doing so well.”
“But now in 2016, those same properties are worth well over $500,000. Those clients that held their properties have made around $150,000 to $220,000 in profit.”
“That’s an increase of about 43% to 79% in value over seven years.”
“It’s a perfect example of getting out way too soon, losing sight of goals, losing nerve and losing a heap of money,” he said.
Short on Cash Flow? Do Your Tax Variation
Successful property investors understand their cash flow and understand that the more ‘frequently’ money comes in then the better this is for wiping years off their debt. And one of the best ways to do this is to do a tax variation.
PEB Group continually emphasises the necessity of getting this done because it directly affects the cash flow of our investors.
Without a tax variation, it will seem like they are losing more money every week because they have to use their own funds to cover the shortfall between rental income and mortgage payments.
If they had done their tax variation that shortfall, assuming they purchased a neutral or positive geared property and all things being equal, would have been taken care of. Their investment property would have performed as originally expected.
And even though they would have still got a lump sum rebate at the end of the year (if they did not submit their tax variation) it's usually spent on other personal expenses such as holidays or eating out and they don’t put the money back into the property.
So they still end up missing out on all of the tax benefits available to them as a property investor.
“Tax variations are something clients need to do for themselves however some struggle to action this very important process,” Mr Collova said.
“Yet it makes so much difference to not only cash flow, but to paying down their loans and ultimately to the total performance of their investment and their long term wealth generation.”
“We put in a lot of work to educate clients on the importance of doing their tax variations through regular emails, investment health checks and meetings.
And we find that our clients who do do it are the ones that are generally following their objectives and are fully aware of their goals and they’re happy. They ring us up and say “Hey Rick we’re doing great.” And when I do their health checks, I find they’ve paid off a lot of their debt.”
“I can’t emphasise enough how much difference this makes,” he said.
Will You Be Successful?
Successful property investment is about thinking and acting long term and being resilient.
Unfortunately unsuccessful property investors get emotional and lose sight of their goals and objectives because they have a very short mentality.
Certainly the media doesn’t help, on the one hand there are stories about depressed property markets and then on the next channel it’s all about renovating for huge profits in a few weeks or months.
“It’s a mixture of fear and greed, but it’s all part of the same short term, instant gratification culture,” Mr Collova said.
“Buying for short term capital growth by flipping a property through renovation is a very different strategy. And it’s a riskier one. It’s a short term, get rich quick mentality.”
“Unfortunately that’s what the media tends to focus on because it makes good entertainment.”
“While it may work for some, entertainment is not what property investment is about for most people.”
“For our clients and most property investors it’s about building long term wealth and providing for their future 10, 20 or 30 years down the track.”
“It’s a long term game, you have to have your strategy and planning in place at the start, and then you have to stick with your plan,” he said.
To find out where you could be 10, 20 or 30 years down the track, invite us to conduct a free health check of your situation.
*This article is for general information purposes only. It is not intended as financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified and registered financial or investment adviser.
PEB Group is a complete property advisory service for Perth families. Offices are located in Inglewood and Willetton, Perth, Western Australia and offer service in - Financial Planning · Finance Broking · Property Management · Property Sales · Property Investment · Development
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