My property investing palm card

Today, let's talk about my palm card for property investing strategy. Over the last few years, I have undertaken an intensive journey of property education. I've read 30+ books on property investing from around the world, listened to every episode of numerous property podcasts and delved into statistics starting from 1970 to develop my strategy.

__>'To invest successfully over a lifetime does not require a stratospheric IQ', said Warren Buffett. __

We can certainly learn from Buffett and many others who have preached this sense of simple and easy strategies for investing success. The palm card strategy (following a simple set of rules that can be written onto a palm card), can be incredibly effective because it's easy to follow and adhere to and that means you can start worrying about things that are outside of the investing world such as growing your income. Think low hanging fruit but in terms of investment properties.

In 2008, Peter Koulizos (a prominent property expert) wrote a book where he outlined the best 20 suburbs in each state for capital appreciation of the next 10 years. We're not going to debate his choices here (although he was quite successful) but the interesting point was that the number 20 performer in Sydney, significantly outperformed any suburb in Adelaide, Brisbane, Perth, Hobart, Canberra and Darwin (i.e. all suburbs in Sydney he talked about, beat every suburb in every capital city excluding Melbourne). The best performer was typically closer to the CBD and sometimes prominent beaches (think Sydney North shore or the Shire for NSW). Houses also outperformed units more 95% of the time (quite intuitive because land appreciates and buildings depreciate).

These points can also be proven by looking at data from 1970 (although, I will note that each capital city tends to grow in 10-20 year cycles (e.g. Sydney peak in 2003 and 2017) and the point about Sydney outperforming will typically only last for a point in the cycle and hence choosing the right city is important for the medium term but not necessarily the long term).

With that said, capital appreciation should be the main focus for investors who want to significantly increase their wealth over time. Although I should note that having a reasonable yield to cover interest costs is also important for growing your portfolio and not becoming limited by a lower borrowing capacity.

My palm card

1. Choose the best state for the time period you are investing (i.e. best state over the next 30 years)
2. Buy close to the CBD (25km for Perth and Brisbane) and (<45km for Melbourne and Sydney)
3. Maximise the land to value ratio - houses will perform better 95% of the time (older properties also outperform new builds for this reason)
4. Balance capital growth focus with some yield

In terms of the best state, I think this currently suits Brisbane, Perth, Sydney and Melbourne. Economically these cities are likely to have the larget population increases (% wise) and create the most jobs.

Land to value ratio is essentially the value of the land divided by the purchase price. This will naturally move you towards a house. My rule of thumb is to seek properties with more than 65% land value but quite often I will purchase close to 100% (remembering that land appreciates and buildings depreciate). My most recent purchase was 25km from a capital city for $300k yielding 6%. Vacant land in the area for a similar size block was selling for $280k+.

The bulk of your property performance will come from the above four rules. Remember, not all investors make money from property (many lose out), and most don't perform well against average / industry benchmarks.

If you have any further thoughts, please write to us so we can all keep learning from each other. Happy investing!