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MAKING MONEY THROUGH PROPERTY

AUTHOR: The Professional Trustee Team

POSTED: 17 February 2014

It's no secret … people can make a lot of money through buying and owning property. But like all investments, get it wrong and you can lose your shirt, tie and pants. Yep … a trip down Brokesville Lane is a very real possibility. To avoid taking this jaunt you need to ask yourself some upfront questions. Get clear with your answers and you'll be well on your way to making a sound investment.

W1 - Why?

The mistakes we make in life can frequently be traced back to one single moment in time. This is particularly so when it comes to losing money on property. The mistake starts with failing to take a moment to consider what you are actually trying to achieve. Therefore, the first question you need to ask yourself is, "Why am I going to buy a property?" Are you trying to achieve capital gain, cash flow or both? Do you want to buy a mousetrap pad to live in yourself? Is it a home you're after? If so, what factors are important to you? For example, is convenience to work more important than any other factor on your wish list? Alternatively, are you trying to build up your personal wealth by purchasing a property? If so, are you intending to rent this property out to gain some rental income? Or are you going to buy a property, renovate it and then on-sell it to make some money? Whatever your objectives, the point is you need to be very clear on what you are endeavouring to achieve.

W2 - When?

A pivotal question that needs to be asked and answered before you embark on your property owning journey is, "When should I buy?"

Like a lot of things in life, there are property seasons. Most people when they first start out in property either aren't aware of these seasons, or they interpret their data incorrectly and get their seasons mixed up. This leads them to making the mistake of buying when the market is very hot and selling when the market is freezing cold.

Informed, wise investors understand also about economic and property cycles: what they are, how they work, how they inter-relate and how they can tell you when you should be buying a property, when you should be holding a property, and when you should be selling one.

The economic cycle shows you what stage an economy is in. Maybe it's in recovery, boom, downturn or bust. The property cycle tells you what things you should be expecting to occur and when they will occur given the stage the economy is operating at. For example, at the height of a boom stage, share prices are usually at their peak. This means that property prices are about to peak. Of course knowing these things helps you make appropriate decisions. For instance, if you know the economy is going into a downturn phrase, you will expect property prices to be heading downwards. This will prompt you to get your funding in place so you can buy a property at a lower price than what you would otherwise purchase it at (e.g. if the economy was operating in a recovery or boom phrase).

Tune in for my next blog for W3 and W4 - What and Where Should I Buy?

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The Professional Trustee Team

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© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

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