As an investor, it’s important to have a property investment plan – and having a close eye on the key details of this plan will help you do just that.
It’s super easy to get carried away with making investments, jumping in and buying property or shares. But as a property investor, it’s super important to have a plan. Have at least a five year property investment plan that ensures your actions match your intentions
There are all sorts of things that you might have planned. Think these through financially. Perhaps you plan to have a baby and expand your family. How would that impact your income? If so, what will you do to allow for that? How would you cope with the extra expense that comes with it? Are you planning to move house, buy a new home, change jobs, emigrate?
What does your five-year property investment plan look like?
Your plan is your personal road map to help you make all of your property investment-related decisions, from buying, selling, maybe renovating and refinancing. It should be a working document – so that you can updated it to reflect changes in your life and your personal circumstances – and you maybe aim to update it every six months or so, to make sure you’re still on the right path
The Property Investment Plan Is A Personal Road Map
It should be tailor made to suit you and your financial position, so that you can be sure you’re making every dollar work for you.
When you’re creating your five-year property investment plan, you need to consider where you want to be in five years’ time. Once you’ve sorted out those goals, you can work backwards from there, to what you need to do this week, this month, and this year to get there.
So For example, you currently own two investment properties and in five years’ time you want to own five (see my video about how many properties you need). This means you need to buy three more properties in five years; so your five-year plan should map out just how you’re going to achieve that, and if for some reason this is not feasible then how do you adjust the plan, or get advice on what you need to do to make it happen.
There are many factors out there that will influence your investment plan, and let’s loosely group them under three headings: finance, family and lifestyle.
Finance
‘Finance’ considerations includes things like interest rate changes, loan refinances, rent increases, your income fluctuating, and your ability to get loans approved when you need them. If you’re buying property during this time then the really important consideration here is serviceability (watch this video). Rents are likely to rise a little each year, which will offset some increases in interest rates, but rates could easily scale up by 2-3% higher in a few years’ time.
Considerations:
- Do you (and your partner if you have one) have steady jobs / income?
- How much do you have in savings or buffers for any unforseen events or emergencies?
- Currently, how leveraged is your existing property portfolio?
- If rates go up 1%, will you still be able to afford to maintain your investment properties?
- Where will the deposit come from for each new property?
- Have you got an independent, qualified and experienced advisor working with you?
Your answers here will help determine your financial goals for the next five years.
If your goal is to buy three more properties, you may decide that you need around $50,000-$100K in savings or usable equity to purchase any new property, which will cover your deposit and buying costs. This means you need to save that amount each year, or your existing property portfolio needs to grow in value by that amount, or both.
You may be able to afford your portfolio now, but how will you manage when your mortgages cost you an extra $1,000 a month due to rising interest rates – or you lose one of your incomes?
Family
If you’re planning to start a family or have more children, then how will you manage the extra costs on top of any rising mortgage costs?
Considerations:
- Are you planning to have a(nother) child in the next few years?
- Would this impact your income stream? If so, how do you plan to replace that income?
- How will you cope with the extra expenses that expanding your family would bring?
Your answers to these questions will feed into your financial decision making, and help you work out a more realistic budget.
Lifestyle
Considerations:
- How often do you want to travel and do you have a budget for that?
- If you increase your portfolio, will that impact your future travel plans?
- Do you plan to update your car in the next five years?
- Do you have savings put aside to cover health issues that may come up?
These three areas cover all of the factors that we sometimes don’t consider properly when we’re making plans and working out our finances, from health and well-being through to travel and lifestyle choices.
You need to make sure that you’re living within your means. If you’re determined to go on that next expensive family holiday, perhaps you need to revise your end goal, and aim to acquire two more properties in the next five years rather than three.
The most important thing of course is to prepare and budget ahead accordingly, so that you don’t over-extend yourself and your finances.
When you are looking to buy your first home, move home, refinance, or invest in property, a licenced, qualified and experienced Property Adviser is a critical part of your armour – and can help you tie down an appropriate and realistic five year property investment plan to help you achieve your 5 year goals, and towards your 10 and 20 year goals.
If you need help with this or anything else property related, why not get in touch? Over the years our QPIA advisers have helped hundreds of property investors make great investment decisions, so simply call us on 1300 077 766 or email info@adviseable.com.au
The information provided in this article is general in nature only. It has been prepared without taking into account your objectives, financial situation or needs, and should be in no way deemed as personal financial or financial product advice. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and circumstances.
