Building a fortune

WHEN it comes to property investing, John McGrath has a winning formula. First he takes a look at where the growth markets are. While he explains that there are at least 50 different property markets in Australia, the major growth areas are those in the capital cities and the Gold Coast. Next he says you have to take a look at the long-term plan and ensure that you will be able to hold onto the property for at least five to seven years. If you can do these two things, the likelihood is that you will double your money. And if you want to speed up the process - and the wealth creation possibilities - then you should also consider leveraging or gearing to fund further property purchases. McGrath suggests leveraging about 10 per cent of your capital at all times to bolster your portfolio.

“When I bought my first property I only put down about $9500,” he says. “I had to pay back the mortgage of course, but by putting down only $9500 I made about $160,000 in a few years.” This leads to his next big tip - never sell: “The only thing I wish I did differently was to keep more of the properties I bought instead of upgrading. There are times in your life when you need to sell - and the reason I sold that initial property was because I wanted to start my own business and I needed money to fund that. But I look back now and wish I could have done both.” Here are his other top tips:

Develop a Plan

Determine what is important - are you focussed on capital growth or rental return? You will often find good rental return will have less return and vice versa. What is affordable and what can you repay as a loan? You need the yields to pay your mortgage off. Do you want to have negative or positive gearing? Sit down with your financial planner to work this out.

Location, Location

Baby boomers are the big growth market at the moment. Many are building portfolios, so they are landlords, and they are often making a sea change, moving from one part of the world to another or moving from houses to apartments. So if you accept the advice that the baby boomers are going to be the biggest, wealthiest market in Australia we need to look for property that is baby boomer attractive, which means close to water, close to the CBD, and in a coffee culture type environment. Think of areas where people have a similar lifestyle, a lifestyle that involves eating out for breakfast and dinner in al fresco cafes. This type of location is very important for the growing value of property. The second strongest market is young professionals and they equally want the al fresco lifestyle. So areas offering those elements are attractive. You can buy a four bedroom home for $290,000 in an outer suburb, whereas in the city it will cost $350,000 for a one bedroom unit. The funny thing is the one bedroom unit will probably grow faster.

Always Go Online

You can easily go to the big sights like realestate.com or domain.com and register your details and get emails everyday with properties that match your buying criteria. Now you can be a lazy astute investor whereas before you had to follow the papers each week making sure you didn’t miss anything. Nowadays the Internet can be used to research sale prices, to track the value of the market, and for new opportunities, by watching what listings are coming in. Once you’ve spoken to your financial planner you can design your ideal investment criteria, including type of property, price, suburb, area. Put in all the details and get emails once a day or weekly.

The Fear Factor

The reason many people don’t start creating their own portfolio is because they are frightened of the possibility of getting burned – everything going wrong and losing money. I can offer some advice for people in this situation that almost guarantees they won’t get burned.So if you follow these protectionist guidelines and get into the market with a five-year view and you focus on the growth precincts you are almost destined to make a fortune