It’s time for property investors to think like disruptors
Disruption is the buzz word of the millennium. Until the turn of the century, it was a word used mainly to describe unruly kids in classrooms, or the traffic chaos you encountered on the way to work. These days, we embrace the word as something to respect and seek out, and if you’re a disruptor, you’re likely to be highly revered.
But disruption still has a down side, and for property investors, disruption in the real estate industry is hurting. As the government introduces integrity measure after integrity measure, in an effort to cool down some of our more heated markets, property investors are taking beatings around the head without any sign of let up.
First, it was lending. The banks tightened up their borrowing criteria, effectively allowing investors to borrow less than they could one year ago. Next came the interest rate bashing, with investors singled out to be charged higher rates of interest on their investment loans.
Then we saw less money being made available to investors, as ASIC put pressure on lenders to cap their investor lending. Many small lenders stopped advancing loans to investors at all for a while, and this took some good deals out of the market place.
And then, as if we had not had enough, the sword was plunged more deeply when the latest budget announced that it would remove plant and equipment deductions for investors of established property. This one is not yet finalised, and although the effective date for implementation has passed, the government is still calling for submissions to assist them to fine tune this little piece of legislation.
Desperate times call for desperate measures, and it’s time for property investors to begin to think like disruptors themselves.
Firstly, just staying in the market with determination will call for you to acquire somewhat of a disruptor mentality. I’ve had many potential investors telling me that they just won’t bother now, as there are too many roadblocks making it harder to achieve success. Once you have decided that you’ll press on, you’ll become part of a shrinking group of people determined not to let barriers get in your way.
Next, begin to think about how you can fine tune what you have done so far to improve your cash flows and outcomes. In my case, I have taken a look at what can stay and what needs to go from my portfolio to make way for property opportunities with potentially better outcomes. I am looking at selling a few plodders which have already made money but don’t outperform, and using the money to potentially improve some of what I am keeping, as well as acquiring different properties elsewhere.
Part of the fine tuning involves seeing where in my portfolio I can improve my cost of borrowing. I am assessing what is out there where I can get cheaper rates, and then I’ll hit my current bank to match that before leaving them entirely. I’ve avoided this for so long, merely because the effort required in a portfolio of my size is enormous, but I’ve now put aside a couple of days to attack this task with vigour.
Lastly, and most importantly, disruption must come about with some creative thinking on how you’ll go about adding to your portfolio. For example, if you can afford to buy two properties, should you instead look at buying one on a bigger block and adding a second dwelling to improve cash flows? This one action will not only add a property with full plant and equipment deductions (when you add the second dwelling), it will add substantial cash flow as the cost of the second dwelling will be the build cost only, as you’ll already have the land. What about an existing property that you can easily convert to two units? I’ve seen this done really well before, and it could be something you can do.
And now, with plant and equipment deductions available for anything you add to an existing property, what kinds of renovations can you do to improve your rent return and receive additional deductions? It’s time to examine what you already have with a view to improving its performance.
The most important thing you can do as a disruptor though, is to not lie down and accept it all as fate. Things will change again, as they always do. There will be more challenges ahead, but also positive changes that you will benefit from. If you knuckle down now, when it’s hardest, and decide to still invest (even if you have to sacrifice a few things to make it happen), you’ll be the one who didn’t let disruption affect you negatively. Someone who has a better financial future than the average Australian.