How to Not Lose Your Shirt Investing In Mining Towns?

Investing In Mining Towns?

Investing in mining towns isn’t for everyone because you need to be prepared to accept a certain level of risk and to take steps to actively manage those risks…

There’s no question a great return can potentially be made buying property in a mining town, everyone wants a piece of the action. You’ve got to jump out of the way to avoid the stampede of investors racing to these one-horse towns for their piece of investing gold.

Investing in mining towns, no form of investing is without risk. The name of the game is managing risks and risk mitigation because if you’re looking for an absolutely safe investment strategy, where there’s no risk of anything going wrong, you wouldn’t be investing in property at all.

Investing in mining towns present the ultimate risk-return conundrum for property investors. Its so hard for property investors to resist because of the highest capital growth rates in Australia with highest rental returns.

Mining towns are the riskiest options for property investors. Why? Because some mining towns are basically single industry economies and sometimes single employers which are vulnerable to downturns in the lone industry.

Investing in mining towns, there’s a misplaced confidence which comes from a bank valuation. Especially when the bank agrees to lend you money. It’s almost like saying its a tick of approval for your decision. Of course, banks know what they’re doing, right?

Please allow me to explain…

Investing in a town based solely on only one industry carries a risk which is greater than actually buying property in an area where industry is diversified. Where an entire area extracts its income and employment from one industry or related industries (for example retail and hospitality), a closure of one industry can quickly have devastating effects on property owners.

An investor may go quickly from having a property with a high value and exceptional rental returns to one with no tenant and no buyers. Done right, investing in mining towns from a property investment perspective can be lucrative and may fit with an investor’s financial goals…

investing in mining towns
Investing in mining towns…the lure of the mining towns offering highest rental yields in the nation. Many are double-digit rental returns…

Here are the top 10 rules for investing in mining towns:

Choose a town with multiple resource companies and varied industries, in order to reduce reliance on the demand for a single commodity.

Find areas with scarce land and/or high building costs, keeping vacancies low and rents high…

Secure a long term lease (e.g. 3+ years) directly with an established large company or government institution in the town, rather than renting property to transient contract workers. Why?

Because you want to minimise the risk of vacancy and position yourself in a much better or somewhat stronger position from variations in the industry.

Choose a house with land rather than a unit as this avoids body corporate costs and opens up future redevelopment potential, which may mean property outperforms on capital growth over time.

Buy on net returns, not gross rental yield. Take the time to research and confirm all anticipated ongoing costs involved in holding the property and deduct these from rent to assess actual cash flow (positive or negative)  the property generates…

Buy for short-medium term, not for the long term. While there may still be a significant lift or run in current mining boom, eventually house prices and rents in mining towns can fall back…either due to increasing housing supply or falling demand for resources.

Never buy site unseen because you don’t know what you are getting into, right? The only time you might consider breaking this rule is if you already have a strong relationship with someone credible, which can be trusted on the ground, and if you first get full detailed reports on the property.

Investing in mining towns provides a false sense of security around property buying and removes any common sense many investors might otherwise use when choosing an appropriate investment that sits nicely within their risk profile.

Investing In Mining Towns

Buying Investment Property And The Property Cliches

Many Australians are buying investment property armed with nothing more than poorly understood property cliches, are these aphorisms always true?

Is property investing your business or passion? I personally love seeing property investors make bank. Seeing property investors make ill-informed property decisions and costly mistakes can be avoided with greater knowledge and understanding of property cliches.

Regardless of your property investing experience and the type of property you’re now researching or planning, here are some real estate and hard-won investing lessons I’d to share with you…

So what are property cliches? Are you aware of property cliches and why you’d want to ignore them in your property research, planning and transactions?

Over the years residential property has proven to be one of Australia’s best performing investments. Buying property is considered the biggest investment decision…a cliche?

Surprisingly, many Australians buy property with little or no investigation into the factors which drive individual property performance.

Misinformation is prolific and the cause of many poor investment decisions. Even well trusted beliefs can prove misleading for the most experienced property investors.

What if you questioned the validity of property clichés and commonly held assumptions? Would it mean as buyers you’d make better informed decisions? What are the investing factors which differentiate a good investment property from a poor one?

property cliches
Are you buying investment property armed with nothing more than poorly understood property cliches…

Location, location, location, possibly the most well-known property cliche, often quoted as the quintessential factor when it comes to property selection.

What many buyers fail to realise is location is about far more than just the right suburb or even the right street; it is as specific as the lot number or position in a block of units.

Neighbouring properties may appear to be similar in many ways, factors such as aspect, orientation, floor plan, levels of natural light and security, all have an important impact on property value beyond the underlying land value.

Hot spots, it’s not uncommon for property investors and buyers to chase the next big hot spot with hopes of making a quick buck. Hot spots aren’t all they’re cracked up to be right?

By definition a hot spot is a suburb or area predicted to benefit from rapid short-term gains in value. However, despite an initial spike, a hot spot is usually characterised by slow or limited growth in the long-term that often eventually undermines short-term gain.

Because of the high transactional costs of buying property investments,  real estate should be viewed as a long-term plan, which means hot spots often fail to provide the exceptional growth buyers hope for…

Timing and analysis of historical sales data clearly shows that it isn’t when you’re buying investment property, so what you buy is that an important factor?

Purchasing a property based on price alone is no guarantee of future capital growth or performance. Selecting the right property with the right profile for growth ensures property owners buy an asset which performs irrespective of wider market conditions.

Keeping up with the Jones, some of the best performing properties aren’t glamorous. When buying investment property don’t be fooled into thinking the more you spend the greater the likelihood of good capital growth.

In fact, buying a flashy new property or one considerably above a suburb’s median price can limit buyer demand and subsequently growth.

When investing, don’t buy property which appeals to buyers’ aspirations. Buy property which caters to financial and social requirements of tenants and buyers in the area.

Sitting on the sidelines, during uncertain economic times it’s common for buyers to withdraw from the marketplace in anticipation of property prices reaching the bottom.

Adopting a wait and see attitude to buying and selling real estate can be disadvantageous.

The reduced competition during a downturn can create really good opportunities for savvy property investment buyers. History shows most buyers tend to return to the market after a positive shift in sentiment and later on as the values have already occurred.

Property investors which have bought well needn’t worry about selling in a downturn either as quality real estate assets are always in high demand.

So don’t wait for others to make the first move. Base your decision to buy on your personal financial circumstances, not market sentiment.

Buy the worst house on the best street, can seem like a cost effective way of buying investment property in a sought after location, however, it is not without risk…

property renovation cliche
Property renovation cliche…

The goal is commonly to transform property from worst to one of the best properties on the street. However, any saving on initial purchase is often very quickly absorbed by renovations to improve the property.

Conversely, deciding to leave the property in its original purchase conditions can have negative implications for the property, which will be reflected in future capital growth.

It may actually be more cost-effective to buy a better property and forgo the expense, stress and risk of renovating.

Think outside the box, when it comes to investing in property there is no need to reinvent the wheel.

Investment properties which offer ROI aren’t always architecturally unique or modern. In fact, they are more commonly well-located inner city period and pre-1970s properties.

Property selection isn’t a guessing game, so stick with tried and tested property selection methodologies that rely on empirical sales evidence, not speculated or high-risk returns.

A renovators dream, as renovation property programs continue to hit Australian television screens the punter or DIY handyman considers the prospect of buying and renovating to make a quick buck.

The novice renovators often underestimates the commitment required to transform a property, which can cost them significantly.

value investing
Novice renovators surprised by value investing…

When deciding to renovate it is important to consider where the property is located, the type of property e.g house or apartment, whether it will be a rented investment property or owner-occupied…

Who is the target market, potential buyer or tenant of the property? Sellers should renovate to their target market…

It is also important to be wary of overcapitalising in a property, as the amount spent on renovations may not offer an equivalent return in the increased value of the property.

A good rule of thumb is to not spend more than 20 per cent of the property’s value on renovations.

Up and coming, closely related to hot spots concept, which is often used for suburbs expected to perform well on the basis of proposed future improvements to infrastructure and/or local amenities such as roads, school, shopping complexes, sporting facilities etc.

When it comes to property, one of the golden rules is never speculate. Purchasing on the basis of planned or proposed future improvements is risky.

Hundreds, if not more, development proposals are put on hold or denied every year and when approved can take many years to build. There’s no guarantee the added amenity will add positive weight to local property prices.

The most diligent measurement for an asset’s future growth is to look at its performance history. Remember to consider this when looking at hot spot or up and coming suburb.

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We might be able to help by mentoring you and giving you a step-by-step system to follow and help you get to the next level.

Property Cliches

How to Get The Right Building Inspector?

Why Choose a Building Inspector?

Are you investing in a property or moving into a newly constructed house or even a house which is new to you? Getting a thorough building inspection is paramount, right?

More and more companies are offering building inspection services these days, so you want to ask the questions to determine whether the building inspection services offered meet your needs…

Is the  building inspection service independent of others involved in construction and real estate?

It may seem like a hassle to check on the independence of building inspection services, yet there are many case studies of people caught out by engaging  building inspection services which have direct links to builders and real estate agencies.

The only way to guarantee results based on an objective criteria is to engage a company without ties to any associated areas.

Does the building inspection company hold all the necessary licenses to complete a thorough building inspection?

Australian states vary on whether building inspectors require licences and what specific areas are covered by licences. You want to ask about licence details to avoid non-professional service.

How experienced is the building inspection services and how qualified are they in their area of expertise?

New companies might be good, yet are you prepared to risk limited field-experience for such an important process? You want to always do your due diligence and research company’s history, plus ask as for referrals including building inspector qualifications.

Does the building inspection service train their building inspectors in house? Training building inspectors in-house is the sure fast way a company can monitor and measure results plus guarantee professional building inspection standards.

How does building inspection service company outline and process their reports? A good building inspection service delivers simple and easy to read reports. If you find any points confusing, they are able to explain all the details in layman’s terms.

Does the  building inspection company provide ongoing service and advice? Getting a certified building inspection may not be the end of your task because what if inadequacies are discovered?

It’s important your building inspector can advise on problems with breakdown of costs and course of action to fix problems.

Building Inspector
Building Inspector

Can the  building inspection company offer specific services? For example pool safety, asbestos, pest and mould checks? A pool entails a level of responsibility and a certified pool-safety check can alleviate worries.

Small details like pests and mould can prove very costly down the track, so it’s best to discover the problems up front.

Does the building inspection company offer extended services and consultation hours? What if you’re too busy to attend inspection during business hours? How to avoid hold-ups by engaging a  building inspection service which operates outside of working hours?

Is the  building inspection service a member of an acknowledged Building association? If the service is a member of an acknowledged builders association, they must be up-to-date on legislative and regulatory requirements.

Remember these associations usually don’t endorse brands which are not competent in their fields.

How does the pricing structure of the building inspection service compare with market competitors? Building and moving is expensive enough without incurring unnecessary costs.

Building inspector…you want to be able to compare prices against other building inspection services, so you shouldn’t be afraid to shop around, bearing in mind the cheapest option may not always be the best…

 Building Inspector

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