World's richest unlikely to invest in property
If you want to build wealth through property, the traditional model may not be the best way to do it.
2016's BRW Rich Listers are unlikely to INVEST in property.
They TRADE in property.
I must admit, this little known nugget revealed in the latest BRW Rich List surprised me. After all, property investing is a national obsession. Just ask all those Sydney investors sipping cocktails in Barbados now while the rest ponder what might have been.
So what do wealthy people do differently? We decided to ask our developer partners behind our armchair development program.
Like 26 per cent of the BRW Rich Listers, they trade property, i.e. they develop and sell property. But they also retain some of their own stock using what I call the ‘combination strategy’.
“Sure,” you’re probably thinking, “but they have all the money in the world to purchase and develop land.” Yes, some have more money, time and contacts at their disposal to make money faster, but there are five key techniques they use in combination to accelerate the value of their portfolios.
So what do successful investors do differently? Well, they:
1. Buy under market value
Wealthy investors buy off-market properties at well below bank valuation. They don’t rely on the property market to generate capital growth. Instead they act quickly, recycling the equity created by buying property at developer’s price, into their next property. There are no flies on these investors!
Average investors? They pay full retail price … and then try to save for the next deposit or wait to see if capital growth in their property will fund more purchases. Often, they stall at one, two or maybe three properties when their borrowing capacity maxes out and they just can’t afford to buy more.
2. Retain properties that pay for themselves
A developer that retains some of their own newly created properties enjoys higher rental yields because they pay much less for their properties. A $400,000 property renting out for $400 per week that only costs the developer $300,000 will probably put cash in their pocket each month after all expenses.
Average investors buy properties at retail price from project marketers and property agents. Many end up with mortgages and costs exceeding what they can earn from rental income. The ATO says 66 per cent of investors recorded an average negative gearing loss of $210 per week … eek!
3. Buy and sell at the right time
Wealthy investors use the proven principle of supply and demand to decide where and when to invest and, equally, when to sell. They rely on objective property data and use free research tools to pinpoint micro markets that match their budget and strategy and to monitor their investments closely to know when to sell.
Average investors rely on biased personal opinion from friends, family or industry ‘experts’. They are swayed by emotion — by hype, media headlines and glossy brochures.
4. Develop property
Wealthy investors create their wealth using property development rather than property investing. They look for 20 per cent-plus cash returns by partnering with successful developers.
Average investors are passive investors. They leave their equity in their home or super.
But now through the power of crowdfunding, through businesses like mine, ordinary investors with as little as $10,000 (in cash, equity or super) can team up with seasoned developers and get double digit returns without having to keep property. This opens up the property development game to us all.
5. Use experts
Wealthy investors are too busy. They prefer to leverage the time and experience of developers and a seasoned panel of consultants.
Average investors take lots of time making expensive mistakes trying to do it all by themselves. DIY developers just don't have the relationships to secure profitable sites, or the track record to secure funding on favourable terms. Their projected profits often differ from reality.
The key difference is wealthy investors buy cash flow positive property at below bank valuation in high growth markets. They put their ‘lazy’ equity to work by trading property with developers. On the flip side, average investors pay too much for properties that negatively impact their monthly family budget. They often stall on one, two or maybe three investment properties and don’t reach their goal of financial freedom.
