Outlined below are our seven key points to consider when investing in property. Please get in touch if we can help you achieve any of your property goals, from assistance with purchasing your first investment property to managing your asset with our dedicated Investment Management team.
1.Understanding the reasons why property is so popular
Investing in bricks and mortar has always been a popular choice for Australians, as it forms part of the great Australian dream. Understanding human psychology and the hierarchy of needs helps us to see that shelter, the second most important of human needs, will always be in demand. A tangible asset that you can see, touch, feel, enhance and have some control over, a dwelling has something that other forms of investment do not. With the appropriate financial advice and ensuring suitable management of your assets, investing in property can be very rewarding and that is why it is so popular.
2. Know your numbers
Investing in property is often the single most important capital item decision most of us make in our lives. For that reason, considering your financial position is critical. Any serious property investment must take into account contingencies for vacant or damaged property, insurance, short and long-term maintenance; and the direct impact any or all of these can have on your income and expenditure. To make a smart investment you should ensure you learn about yields, gross and net return on investment, and the possible effect of negative gearing on your week to week budget.
3. Being clear about location
The purchase cost and the actual return of a residential property investment depends on its location. Like blue chip stock exchange shares, blue chip property locations tend to offer lower rental yields, yet may be more stable investments. Similarly, higher speculative locations, such as mining or military towns, may return higher percentage yields but there may be an associated risk that the bubble may burst. Many investors often choose to invest in the locations they know and trust.
4. Finding out how to leverage your property equity
The majority of private, residential, rental investment property is owned by what we call Mum and Dad investors. In terms of investors, 72.8% own 1 investment property, 18.1% own 2 properties, 5.5% own 3 and 3.7% own 4 or more. Out of the total number of income earners in Australia, however, only 13.8% own investment properties, most of whom have leveraged equity in their own family home to invest. So the first step, if you are thinking about investing, is to do an equity calculation to see if this may be possible for you and then talk to your advisors on whether it is feasible for your personal cash flow position.
5. Understanding the tax implications of property investment
Negative gearing is probably the most commonly cited reason why many people consider property investment, but it is not as simple as many think. Significant research and good advice from your accountant or financial planner should be sought before you embark on the investment journey. Other taxation issues to consider include your own personal income tax, Capital Gains Tax and Land Tax.
6. Looking towards the future
Once you have taken your first, brave step into the world of property investment, you have also started to give yourself options for your future. Building a property portfolio is one of the best ways for developing retirement security. The utilisation of your equity and income/tax advantages should be assessed every year to see what progress has been achieved and to further maximise and grow your portfolio.
7. Don’t be fooled into thinking that the Asset Management only involves collecting rent
The correct management of your property is crucial for your peace of mind and with effective strategies in place for maintenance, management, property improvement and asset growth a positive annual rate of return will follow. Employing a professional will reap returns.
Other things you need to know
- Whether your investment be Residential, Commercial, Industrial, Retail or Property Trusts, all operate in very different worlds and all require very specific specialist advice.
- Ensure you are aware of all the obvious (and sometimes less obvious) costs in a property investment venture. This will provide you with a true rate of return. Study the history of the property/block to understand its current and possible future potential.
- Make sure you investigate the opportunities that depreciation allowances offer, particularly for new properties, and how this applies to any property improvements you undertake.
- Learn about building maintenance and how Strata Title owners’ corporations operate.
- Property investment, if handled correctly, should be considered as a more long-term strategy than a shorter term get in/get out strategy. Consider both acquisition and disposal costs when calculating.