11 April 2013 Words of investment wisdom

Five seasoned property experts reveal the biggest lesson they've learnt since they started investing.

Helen Collier-Kogtevs, Real Wealth Australia

I'd have to say the biggest lesson I've learnt was when I hit the financial brick wall.

You see, in my early years of investing, capital growth - that is, negatively geared investing - was the only strategy I used.

The problem is that unless you have cash flow, the banks will stop you dead in your tracks. This is what happened to me and once I discovered positive cash flow properties, I was able to balance the portfolio by buying six of them.

Balancing my property portfolio resulted in unlimited borrowing power and therefore many more property purchases.I still balance my property portfolio today.

Peter Koulizos, TAFE SA

If there's one lesson I've learnt in all my years of property investing it's that I should have started earlier.

My dad was at me from an early age and encouraged me to buy property. At that point in my life, all I wanted to do was socialise and play sport, not worry about getting a mortgage to buy a house.

In retrospect, that's exactly what I should've done; I should've taken my dad's advice and bought at the age of 20.

I didn't buy my first investment property until I was 30. Property values increased by 150 per cent in that 10-year period!

However, the other important lesson I've learnt is that it's never too late to buy property. We're about to enter another upswing of the cycle and I look forward to my investments growing by 150 per cent in the next 10 years!

Bryce Holdaway, Empower Wealth

The biggest lesson I've learned is that property investing isn't all just about the bricks and mortar!

Make no mistake, I think asset selection is critical and getting it right is a skill in itself, but it's just one part of a four-pronged approach that needs to be coordinated as one.

Now I focus on mastering the interrelating components of 'ABCD' - asset selection, borrowing power, cash flow management and defence.

For asset selection, I look for scarcity value, owner-occupier appeal and investment grade properties to give me the best chance of outperforming the averages.

Borrowing power has me focusing on optimal lending structure rather than purely on interest rates and establishment fees.

With regards to cash flow management, I not only consider the needs of my properties but I also model the entire household cash movements (bills, loan payments, lifestyle and discretionary spending) today and in the future to ensure my liquidity is never put at risk.

And finally, defence is simply my way of protecting the family in the event that anything happens to me by insuring myself, not just the properties.

Nhan Nguyen, Advanced Property Strategies

The biggest lesson I've learnt is to not spend my profits before I get paid.

Leading up to the GFC, I had a $4.7 million deal that we'd bought off the plan and presold for $5.7 million.

All contracts were unconditional and deposits were paid. As far as I was concerned, there was $1 million profit in the bank and I started spending.

I upgraded my office, staff, car... the works! The project took an extra year and contracts fell over left, right and centre.

Fortunately we ended up making some money - but it was $200,000. It wasn't $1 million as expected, and I'd already spent a lot of money on lifestyle and toys.

These days if I'm going to upgrade things, I make sure I don't spend profits in advance.

Michael Sloan, The Successful Investor

My biggest lesson is to know your cash flow. It doesn't matter if the property delivers positive or negative cash flow, but you must know what it is before you buy to make sure it matches your personal circumstances.

When we bought our first three properties, we had no idea what the cash flow was - we just knew buying investment properties was a good idea.

Needless to say, we then ran out of money! Our spare cash flow dried up until we got a tax refund and were flush with funds again.

We smartened up after that and always ran the figures before investing. But in the last 10 years of consulting with clients, I've met too many people in financial difficulty because they didn't calculate the cash flow before investing.

Reproduced in full with permission: Australian Property Investor Words of investment wisdom 4 April 2013

Attention: This article is intended to provide general information only. Every attempt has been made to ensure the accuracy of this information at the date of publication. The opinions expressed in this article do not reflect those of DHA, its staff or agents. Property prices are subject to fluctuation. Prospective investors should seek independent advice. DHA will not be liable for any loss, damage, cost or expenses incurred or arising by reason of any person relying on information in this article.