Kevin Tran (pictured above), a buyer’s agent at data-driven buyer’s agency InvestorKit, is a keen investor with three investment properties under his belt, totalling $1.8 million.
Unlike other Australians who relied on the “bank of mum and dad” to purchase their first property, Tran was one of the many young adults who didn’t have family support as an option in securing a deposit. Instead, he learned from his parent’s multiple mistakes in their property journey, as well as from his own, to achieve success.
“My parents had an immigrant scarcity mindset, they were really good savers,” he said. “That's where I learnt how to really save. But when it came to their investing, they didn't have a strategy. They bought a house in their local area during Sydney’s early-2000s property boom but didn’t do any due diligence.
“If they had understood equity, leveraging, and capital growth, they would have seen a huge return on that investment. But they didn’t and they sold it after just one year due to fears that prices couldn’t go up anymore – again, due to the scarcity mindset and lack of education and financial literacy.”
Tran shared the biggest mistakes people make when buying a property:
- Purchasing the wrong asset type.
“Because many people can’t afford to buy a house as a family home these days, they may opt for an apartment in their local area,” Tran said. “But it’s a trap in which families will get stuck with an underperforming asset.”
There are even more pitfalls to buying an apartment, he said. These include the following:
- Because apartments are often in a high-density building, whatever land component the buyer has is split between all the residents
- If planning to sell, the unit won’t likely sell at a premium because there could be an oversupply at any one time
- Structural problems like concrete cancer and other waterproofing issues can be common
- Owners could face capital expenses or a special levy if anything in common areas needs to be fixed or needs to be improved
- Monthly or quarterly strata levies also apply
- Not doing your due diligence.
It’s essential for buyers to check what is in the surrounding areas, and what’s planned in the surrounding areas too. It’s also important to know if the property is next to any commercial sites, a water treatment facility, or in a flood zone, or is at risk of bushfire.
- Only purchasing in their backyard.
Buying in an area unfamiliar to buyers could mean the biggest capital growth, and in the case of an investment property, long-term rental returns too. Tran said people should do their research and due diligence. They could also hire a professional buyer’s agency that focusses on borderless investing.
- Not understanding the fundamentals of finance.
“People need to gain a fundamental understanding of property finance and markets, if you're going to be an investor or a property owner, you need to understand the basics,” Tran said. “My go-to for starting out your education in money and finance is the book, Rich Dad, Poor Dad by Robert Kiyosaki. It’s vital to get a grip on how money, leverage and investing works as a bare minimum.”
- Not having a six-month buffer or emergency fund.
Investors should not focus solely on buying their next property, but also take into account unexpected issues such as repairs, vacancies, or rising repayments. Buyers should have an emergency fund that will cater to these issues and a six-month buffer is ideal and brings an extra peace of mind to the property purchasing journey, Tran said.
One of the biggest things Tran has learned since purchasing his first investment property seven years ago was the importance of changing his financial habits and mindset.
“After seeing my parents be frugal and saving being so ingrained in my family, I inherited that approach,” he said. “Every time I got paid, I would automatically save a major chunk of it, as much as I possibly could.
“But what I learnt when I started working at a casino in my early twenties – and seeing people blow insane amounts of money and saying they could just make more – was that saving can only get you so far. I had to adjust my mindset and my approach to finances drastically. This is why it’s important to educate yourself on the basics of finances, so you can make the right financial decisions that will continue to grow your wealth.”
Here are Tran’s top tips for buyers:
- Reduce costs.
“It’s an obvious one, but it’s essential, especially with the rising cost of living,” Tran said. “Live at home as long as you can, or in a share house. With expenses rising, anyone who wants to purchase property has to get a little creative, and be prepared to sacrifice certain luxuries.
“Saving up the deposit is the hard grind. If you do it well, you will be able to leverage equity for your second and third investment. Reducing living costs will also enable you to increase your borrowing power, and it’s crucial for your first property.”
- Buy an established house.
By buying an established house, buyers can get compounding growth and rental income straight away as opposed to waiting two or more years because of potential building delays.
Tran also warned about the variables with new builds, including getting a smaller land component and paying a premium on the house build itself. There’s also a much higher risk due to material and labour costs at all-time highs.
- Pay yourself first.
“When I got paid, I would just transfer a whole bunch of funds into another account and then never touch that money,” Tran said. “By doing this approach I saved $65k over five years, which is $13k a year. I had to be disciplined, but over time it got easier. It was just over $1,000 per month I was saving.”
- Ditch the credit card.
Or if you need one then try and have it on the lowest limit to help increase your borrowing power.
- If you have a property or multiples already, refinance.
“I refinanced my properties, I've taken equity out and parked it in an offset,” Tran said. “So, effectively, that's my savings as well, which helps because now having the family and the business, it's just nice to have some backup money. Now that I’m a father, it’s been important to change the structure of my money so that I can afford the costs of having a family.”
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