Episode Details

How do I invest?

What approaches do I use and which strategies do I use?

There is no "secret" to successful property investing, but there is a strategy I use to boost my chances of success.

It is to firstly build my asset base through capital growth and then, once I'd built a substantial asset base, to move to the "cash flow" stage of investing.

When my properties increase in value this gives me equity for my next deposit and the greater rental growth helped pay the mortgage.

The next stage is to slowly lower the loan-to-value ratio (LVR) of my property portfolio and then to start living off my "cash machine" of properties.

You see…while cash flow management is important to keep you in the investment game, it's really only capital growth that'll get you out of the rat race.

A big mistake I see many investors make is chasing cash flow positive properties early in their journey and never achieving a sufficiently large asset base.

My Top Down Approach

Over the years I've honed my property investment strategy to find that 5% of properties that I like to call "investment grade" properties, – ones that are likely to grow at wealth producing rates of return.

I use what I call a "top-down approach" to my investment selection.

• The Right Stage of the Economic Cycle

• It starts with buying at the right stage of the economic and property cycle.

• I look at the big picture – how's the economy performing and where are we in the property cycle?

• The Right State

• Then I look for the right state in which to invest – one that's in the right stage of its own property cycle.

• While I'm not trying to time the cycle, I don't want to buy right at the peak when I'll have to wait longer for capital growth.

• I only invest in our larger capital cities, where there are multiple pillars to the economy – because this is where economic growth and wages growth will occur.

• The Right Suburb

• Then within that state, I look for the right suburb – one with a long history of strong capital growth outperforming the averages.

• I've found some suburbs have 50 to 100 per cent more capital growth than others over a 10-year period.

• It's all about demographics, as these suburbs tend to be areas where more owner-occupiers want to live because of lifestyle choices and where the locals will be prepared to, and can afford to, pay a premium to live because they have higher disposable incomes.

• In general, they're the more affluent inner- and middle-ring suburbs of our big capital cities, so I check the census statistics to find suburbs where wages growth is above average.

• Clearly my approach is very different to the speculative approach some investors adopt looking for the next "hot spot".

• The Right Location

• Once my research has shown me the suburb to explore, I look for the right location within it.

• Some livable streets will always outperform others and in those streets, some properties will always be more desirable than others and outperform as investments by increasing in value.

• Think about the suburb where you live – there would be areas you'd happily live in and areas you would avoid, like on main roads or too close to shops, schools or commercial areas.