Three property trading rules you must know

Property trading can be very rewarding and at the same time very costly if you get it wrong. The experts at Wealth Ladder give investors these important tips.

Sunday, February 19th 2017, 12:00AM

by The Landlord

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You need to develop your own unique style. Your area, property type, target issues to fix, target market opportunities, process for adding value and your end customer.

Over time, you will develop a set of rules but if you begin with the following three, these will always be fundamental:

Rule #1: Consistency

Any trading strategy; property, stocks or businesses; must be consistent in process and results. It must be firstly reliable and secondly predictable.

Develop consistency by honing your skills. If you choose to renovate or develop property, improve your skills, knowledge and confidence with small projects. The returns may be smaller but the risk is also smaller.

After consistently completing, say, four or five small projects, then move up to a small subdivision. Importantly, develop the skills to locate and manage tradespeople. Remember, complex projects require excellent project management skills.

Secondly, develop consistency by building a trustworthy team. That means of course, you being the most trustworthy. Pay people fairly and pay them promptly. Paying someone immediately has little cost to you but it means a lot to your contractors.

Learn to consistently purchase the right deal in the right area at the right price. You make your profit when you purchase. However, buуing a сhеар property just because it is cheap, is a recipe for disaster.

You are far better to create profit by adding value to properties purchased at market value.

Experienced investors and traders do not need to steal properties to make money. They make money from understanding the difference between market value and true value.

Rule #2: Risk aversion

Remain acutely aware of risk. It is better to get a slightly lower return on your money than end up losing capital. Legendary investor Warren Buffet points this out in his investing rules; "Rule number one:

Never lose money. Rule number 2: Don't forget rule number one".

Conservatively calculate the capital required including deposit and cost of adding value. Know the end sale price and double check your calculations to ensure a satisfactory profit for your time, capital and risk.

Rule #3: Speedy returns

The key to successful property trading and development is speedy returns. Anything that you can do to speed up the deal reduces your risk and increases your return on investment. You can speed up the time from purchase to the time of sale by; negotiating extended settlement periods to get designs completed, consents approved, contractors lined up and perhaps even early access.

Use trustworthy contractors and reputable real estate salespeople to get the best price in the shortest period of time. Half the time taken and double your annualised return on investment.

I often hear people saying that good deals don't exist. I assure you that an abundance of great deals exist always. Rather than complaining of the lack of deals, refine your strategy and target deals that fit your criteria and what your local market needs.

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