Our newsletter this month covers off on “Investor Mindset and why these two distinctions are important to recognise.
- Passive Not participating readily or actively
- Proactive Tending to initiate change rather than reacting to events
We have written a number of articles this year on “untangling the mess” which focused on the importance of finance structuring to expedite your wealth creation. Along side the importance of finance structuring, it’s vital that we explore whether current mindsets as Property Investors helps or hinders us in the wealth creation process.
One of the key mindsets behind successful Property Investors is that they are proactively searching out opportunities, exploring options, researching current market conditions and then taking action versus passively waiting or being reactive for conditions to improve before taking action.
The Global Financial Crisis (GFC) changed the financial landscape for our Property Investors. Whilst in the climate of economic uncertainty, the GFC brought a halt to reliable increases in property capital gain as well as bank credit departments reducing the availability of loans to access equity.
A changed market place inevitably means a change in the way an investor reaps rewards and builds long term passive income streams. Old strategies may need to be updated or abandoned whilst new strategies are planned, reviewed, researched and actioned.
Is your wealth creation increasing or are you currently stalled?
You may have properties in your portfolio that are:
– Long term holds but performing poorly in capital growth and/or rental yield;
– High negative gearing with poor cash flow;
– Impacting your borrowing capacity to increase your portfolio;
– Exhausting or reducing your buffers below a sustainable level;
If any of the above applies, you may feel frustrated and uncertain what options you may have which in turn can create a passive investor mindset.
Below are some key action steps that property investors are taking to move from a passive investor mindset and wealth creation model to a proactive one:
1. Improve cash flow and capital value in your property portfolio:
Add value via cosmetic or structural renovations to attract higher quality tenants, better rent return and improve capital value. This could be simply painting, new carpet or adding an air conditioner. More structural renovations, like adding a bedroom, can also increase rent returns as well as capital value in your property. Consider adding or replacing properties with ones that have the option to add value to them in some way. This type of property is commonly called “with a twist”. They can hold unrealised potential to add value and higher returns. You can actively pursue the “add value” properties and in doing so accelerate wealth creation. For example, explore opportunities that allow renovation, adding a second dwelling, realigning a boundary or subdivision and/or developing.
If you have a property that is close to a technical college, university or teaching hospitals, consider renting “room by room”. This can increase the rental yield of a property as well as reduce the potential vacancy rates. For example, a 3 bedroom property with single lease may return $280 per week. However, the same property leased “room by room” at $120 per room will have higher rent return ($360 p/w) and varying lease periods. E.g. if the tenant in bedroom 1 vacates, room 2 and 3 are still providing rental income of $240 p/week ensuring a more stable income stream whilst re-leasing bedroom 1.
Take advantage of council regulations which allow for higher density housing and explore adding a granny flat to existing properties or subdivide an existing property to sell part thereof. The sale funds can then be used to reduce debt and build equity in your portfolio or towards adding to your portfolio.
Analyse existing properties and their performance. Explore selling properties that are not performing or cannot be improved. If properties are hard to sell at the price you want, consider providing incentives to buyers. (We have examples of clients who offered vendor finance options to purchasers and successfully marketed “hard to sell” properties for a good returns by helping purchasers with no deposit to acquire a property).
Source properties in growth areas. Check which local councils for areas which have planned infrastructure, business projects increasing, and demographics trending up. It helps more when you ride this trend in its early stages.
2. Becoming an “attractive” borrower:
It’s important to ensure that your loan application looks as attractive as possible to lenders for them to consider and say “yes” to a loan application. For example, if you change jobs from a PAYG to a contractor role or into your own business, you may undermine your borrowing capacity for 2 years. Moving from a permanent role to a casual role can also restrict what income a lender will consider when assessing your serviceability. Submitting multiple loan applications to various lenders can also result in an increased number of enquiries on your credit record. A high number of enquiries can trigger a negative credit score and equate to a more restrictive assessment of your loan application.
3. Ongoing education, continual improvement:
To be a successful investor you need to be abreast of the latest strategies and market place information. Choose to attend seminars and webinars that offer information from experts who have a proven track record and are still actively implementing the strategies that they teach. Beware of the educators whose strategies worked in past years but are hard to implement under current market conditions. Align with people and organisations that can provide you the right information specific to your goals.
Proactive investors are doing very well in the current market place by seeking opportunity in places that passive investors fail to notice. Their success comes together with diligent research and number crunching, seeking advice and help from trusted advisors and from a willingness to learn and ask questions.
Chan & Naylor offer Financial Strategic Consultations to review your current portfolio, reenergise property investor mindset and assist in generating proactive action plans to help you achieve the financial results you desire.
It can all begin with a Free 10-15 minute phone consultation with a senior partner of Chan & Naylor – register your details for complimentary call back service.
Book in your Financial Strategic Consultation and “reenergise” your property mindset.
We can helpy you ‘Grow and protect your Wealth’.
Jenna Ford & Lauren Mamaj
Finance Strategists & Partners Chan & Naylor
Disclaimer: The above information is for general knowledge purposes only. Please take advice for your specific situation before investing in property. Every person’s personal situation is different and requires a different solution.