Immutable Laws of Property Success

The Immutable laws of property could be related to a little like gravity. Whether you believe in gravity or not, if you jump out the window of a building you will soon come face to face with its consequences.

Much as we recommend you don’t try to defy gravity, OPIC also recommends you do not try to defy the laws of property success.

The fundamentals of money and the fundamental drivers of capital growth have not changed for centuries. The OPIC laws of Property Success have been put together as a result of many decades of personal experience and centuries of evidence. While our property analysts and the commentators we follow are very smart, many of these principles are not unique to us, in fact, they have been around since the beginning of money and property trading. These are immutable laws that have proven themselves safe and successful forever and are most likely to continue to do so in the future.

By combining historical patterns and the most current, up to date statistical data, OPIC has established a set of laws that give you the best possible chance of putting together a property portfolio capable of making you a lot of money in the fastest and safest way possible.

 

  1. Build an asset base big enough to support your lifestyle when you want to stop working.
    • 1 property generally won’t be enough
    • You need a portfolio, which is defined as “a collection of investments held by an institution or a private individual”.
    • At some point, you will have to pay off the remaining mortgages, so you need to buy more properties than you ultimately intend to hold in order to pay off remaining debt and maintain some freehold properties to deliver rental income. Depending on your lifestyle, you may need more than four properties.

       

  2. Failing to plan is planning to fail
    • Educate yourself properly FIRST before you buy anything.
    • 95% of Australians will fail to gather a net worth capable of supporting them in retirement.
    • Each investment property forms part of a well thought out solution to your own well thought out and planned wealth creation strategy.
    • Surround yourself with people who have demonstrated success.
  3. Be fearful when people are greedy and be greedy when people are fearful (Warren Buffet)
    • Avoid heated markets when the masses are there. Properties can over inflate beyond their true underlying replacement value in heated markets.
    • Abnormally high increases in value due to undersupply are often met next with crashes from oversupply resulting from overinvestment.
    • Buy only when property is at or below its intrinsic value.
    • Buy low, sell high.
    • The bottom of the cycle, when properties are at their low, before people see the market turn are the best prices and terms. This is where the most money is to be made.
    • Understand property cycles, drivers and intrinsic values in the location you are buying in. Learn how to read the bottom and the top of the market.
  4. The game is equity and capital growth
    • If it doesn’t have a realistic chance of doubling in value in 10 years, we are not interested in it.
    • Buy properties that have equity on completion (at least avoid negative equity situations)
    • $50 per week will not make you rich. We love positive geared properties where possible. BUT not at the expense of capital growth. If it’s not going to increase on value it’s generally not worthy of your ownership.
    • Buy ONLY properties that offer capital growth NOW and, subject to normal cycles, will continue to grow for the lifespan you intend to own it.
  5. Don’t put all your eggs in one basket.
    • Diversify in multiple regions to spread your risk
    • Don’t get stuck on one property type. Consider using multiple property types i.e. houses, townhouses, apartments
    • Balance your low risk stable performers with your high risk high return options no more less than 4:1.
    • By diversify we also mean don’t make your only assets property. Have alternative asset classes.
  6. Supply and demand is everything.
    • Only buy locations where you can guarantee demand through population growth will continue to increase for the duration of ownership.
    • Only buy where land is in short supply and is about to run our or better where it has already run out.
    • Scarcity is KING. Always ask, will this property continue to be scarce and will demand continue to increase.
  7. Location, location, location.
    • We are buying in to locations and more importantly economies. Choose the correct location first.
    • Buy the majority of your assets in large, diverse economies with multiple drivers.
    • Economies that have only one driver risk failure and should only be used by sophisticated, experienced investors as a small percentage of their total portfolio. They are short term speculations in most cases.
  8. Get your timing right
    • Buy low and sell high.
    • Right time, right place, right price.
  9. Time in is even more important than timing
    • Assets need time to mature and grow.
    • Accumulate as fast as you can so you can start the consolidation process sooner.
    • While we are insistent on avoiding buying at the wrong time in a property cycle, and you should not use this as an excuse to buy just anything at the wrong time, or guess, most assets in high population growth areas will perform over time, even if they were brought at the worst time in their cycle.
  10. Buy the right property type for the area you are buying in.
    • You must understand not just what properties are in demand now in the area you are purchasing but you must understand where the demand will be when you come to sell it or live off its income.
    • Apartments don’t belong in suburbia, houses are poor use of inner city high density locations.
    • People who live close to a CBD trade space (land) for convenience (time), whereas those who live away from a CBD trade convenience (time) for space (land).
    • Different areas appeal to different types of tenants.
  11. Buy new or near new properties for predictable low holding cost, tax effective investments.
  12. Nothing creates NOTHING
    1. Failure to take any action is the most common source of failure.
  13. Right location, right time, right price
  14. Build a property portfolio that can support itself
    • If you can’t support this without your job, and without the tax man, don’t buy it.
    • Make sure it at least breaks even after tax. Especially in the current market
    • Consider balancing low risk negative geared with high risk positive geared properties for optimum in gearing, risk and capital growth potential.
  15. Have a plan for the worst case scenario
    • What if I lose my job
    • What if the area fails
    • What if interest rates move
    • What if my property is vacant
  16. DIY could cost you your future
    • Most Investors don’t have the experience, time and expertise to identify properties and markets that are a best fit for their personal investment requirements. They will often pay more, save less, buy the wrong property, location and miss the best opportunities.
    • A bad decision could see you trapped with a poor investment that doesn’t perform for many years, or worse, never performs.
    • Successful investors use experts that are experienced in researching and selecting the right properties at the right time and then employ them to do the hard work while they make money.

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