Ten ways to shorten your odds and win the property investing race: Craig Turnbull

GUEST OBSERVER

Today, a horse race stops the nation of Australia. It’s the Melbourne Cup, a race with over $6m in prizemoney. More than 100,000 people will show up to the racecourse, 4 million Victorians will have a public holiday, 13 million people will wager over $400 million on the race and an estimated 700 million people from 120 countries will watch it on television.

Yet according to Asteron Life, the odds of picking a winner of the race are 1 in 24 and the odds of picking the trifecta (1^st, 2^nd & 3^rd) is 1 in 12,144. That can be compared with 1 in 6250 for being hit by lightning.

These aren’t really what I would call favourable odds, yet people flutter away their money anyway, justifying it as a bit of fun.

The way some people choose on which horse to spend their money can show us a lot about what they will do with their money in other parts of their lives. Many will choose to bet based on the horse’s colours, the number or even the horse’s name. Those who are a bit more sophisticated, or perhaps even trying to win the game, might make their choice by betting on a horse with a top jockey or a winning trainer. Over almost a 50 year period, Bart Cummings trained the winner of 12 races – though sadly he has passed away and will train no more winners.

Still others will look at the gender of the horse, its age, its handicap (how much extra weight it must carry on its back around the 3.2km race), the country where the horse was bred (New Zealand has 40 cup winners over its history). The really smart punters will also pore over the recent form of the horses in similar races. Still others will just bet on the horse everyone else will be on – the “favourite”, reasoning that must be the horse with the best chance of winning. Yet over 150 years of Cup History, only 23% of favourites have won. And even if you do win, the payout odds are usually so low as to almost make it not worth the risk.

Few people will win more than they wagered and most will lose their money.

The only way to be sure you don’t lose any money, is not to bet. But then neither do you have any opportunity to win.

Take a moment to think about how you would bet on the race – if you were inclined to do so?

Now take another moment and consider this – how do you invest your money?

Are you a “colour,” “number” or “name” type investor? Or a seasoned veteran who examines all of the variables before making an informed decision?

If you would like to shorten your odds of winning the real estate investing race, here are ten very good ways to do so:-

1. Have a plan – work out where you are now and where you want to get to financially. Assign a timeframe and then work out a reasonable plan to get there.
2. Know about your financial capability – what can you afford to borrow and repay? How much deposit do you need? How much rent do you need to generate (after all expenses) so that you can easily afford your loan repayments? Do this before you go out looking for your investment property. And never spend to your maximum capacity – always hold some in reserve.
3. Narrow down your investment criteria – so many things need to be decided upon like city, suburb, price bracket, location, property type (house, apartment, townhouse), number of bedrooms & bathrooms.
4. Identify the future macro market drivers – your investment is not about what worked in the past – you need to know what people will want in the future. Some of the most important high level considerations are – transport (rail, bus, tram, freeways); travel commute time to city; expected population growth; economy in the city/region; employment rates – current & forecast; affordable price bracket for the city and for the average wage earner or wage earning couple – try to stick to within 20% of the media price for the city and also the suburb in which you are investing.
5. Identify the locational drivers – these include things that are desirable in the location surrounding the property.  Local amenities like schools, shops, medical facilities, health and sports facilities, entertainment – cinemas, cafes, restaurants – all of these will be high on the list of “I wants.”
6. Identify the micro drivers – what is it my future tenant or buyer will be looking for in terms of the actual property itself? Air-conditioning, clean (this one often overlooked!), nice-looking from the street, modern kitchen & bathroom, bedrooms large enough to live in; decent storage space; homes with a separate study area for those who work from home; security; off-street secure parking; if an apartment complex then a boutique size (less than 50-60 units) and ideally not on a main road. And steer clear of the mega apartment towers.
7. Become an armchair researcher – don’t spend wasted hours running around the city attending auctions and home opens, until you at least have spent many hours surfing the internet virtually inspecting homes to get a good idea of what is available for what price.
8. Become an investigator – once you have narrowed down your search, the next thing to do is to find out what has sold recently and then examine as many of those homes sold and then those actually on-market as you can. You should see at least 20 properties live and 200 properties on the internet before buying one.
9. Be patient – picking the first property (or horse!) you see probably isn’t going to work and is akin to a dartboard approach – or picking your property based on the colour or number of your horse. Patience pays.
10. Be a rock – that is be unemotional about your future investment property. It won’t care who owns it, so you shouldn’t either. Being unemotional means you won’t get caught up in the glam and excitement of becoming a property investor – and you will invest based on the facts and the numbers. And understand that your horse won’t know you bet on it either – it won’t run any faster than it can.

I think the horse I bet on last year is still running. A bit of fun, but not a good investment.

Can you shorten your investment race odds?

Craig Turnbull is an author, property developer and real estate investor. He can be contacted here.