There are very limited opportunities for an employee to prepare – financially – for retirement.
Apart from converting a hobby into a "profitable hobby", the other usual choices are equities and/or property.
However the market risks for a pure equity strategy are quite high, and a diversification into real estate is generally the only option for most of us.
In fact, because of the superior borrowing capacity with investment property, historically real estate has delivered the better outcome, and this is likely to persist.
However the key to successful property investing is firstly to focus on the ideal tenant (as this is the basis of your longterm cash flow) and then provide them with the style of accommodation that they want.
This is probably 30% of your success.
Then the location will provide for capital gains – 50% of success – and the other 20% relates to the packaging i.e. the funding, the accountancy support, the correct insurances, the asset manager and the legal ownership structure.
The Ideal Tenant
The ideal tenant has been proven over time to be a young couple with children in primary school.
The reason is that parents won't want to break their children's friendships by repeated re-locations.
So this means that you'll have fewer gaps in your cash flow, and avoid the asset manager's fees to find new tenants.
The Ideal Accommodation
Now that we know who is the ideal tenant, we naturally want to acquire an investment property that will be able to attract a continuing series of long-stay, quality tenants.
And this is a new, four bedroom family home in a family suburb.
So that's what we purchase as an investment – not something off a glossy brochure or website, or advertised to the retail public.
The bricks and mortar that you purchase will represent 30% of your success.
Location
The capital gain is where the serious benefits come from with property investing, so you need to decide where will be best.
A good rule of thumb is to follow where major infrastructure is being built – universities, hospitals, shopping centres, freeways. But don't follow the herd – for zillions of years that was the best strategy ("safety in numbers") – but it's hard to be different because only for the past 200 years has independent self-interest been possible.
The location is vitally important as it will deliver to you 50% of your long term financial success.
Packaging
Perhaps 20% of your success will come from the support network that you develop for your property portfolio.
The people you need will include your property investment advisor, funding strategists, lawyers, accountants, insurance brokers, asset managers and estate planning professionals.
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