When it comes to building a retirement nest egg for the future, property is still viewed as one of the safest long-term investments.
If you haven’t dipped your toe into property investment yet, you may be wondering about how to get started and there’s no doubt it can be a bit of a daunting process, but it doesn’t have to be!
There are a few strategies you can go with and what you end up pursuing really depends on what you’re looking for.
While some investors might be looking to buy a property and rent it out straight away with a view to start earning regular rental income, others may choose to live in the property while they renovate it, with a view of selling it in the short-term to make a profit to name a few.
Whichever type of investment you choose, whether it be long or short-term, investing in bricks and mortar can be a great way to create wealth. Here are a few things to consider before diving into property investment.
Know your budget
It’s essential to have a thorough understanding of your cash flow. It’s a good idea to speak to a mortgage broker about pre-approval of your investment loan so you know how much you’re able to borrow before you start your property search.
If you’re planning on renovating, you’ll also need to factor in how much you’d be willing to spend on doing a property up, including a buffer if expenses were to blow out.
Don’t underestimate ongoing costs
Make sure your budget allows for rates, insurance and general maintenance and repairs.
Research your area thoroughly
When finding a suitable property, make sure you have all the facts and figures needed to make a wise investment decision. This includes the demographic of the area, are there mostly renters? Are first home-buyers interested in this area? Depending on your investment strategy, you’ll want to ensure your property will be either well-placed to attract renters or home-buyers.
Be realistic about your investment goals
Are you looking for capital growth or do you want to hold the property long term? During a strong market
period, it will be easier to renovate properties and sell them for profit. But in slower economic times, a wait and see approach may need to be taken as you wait to achieve capital growth whilst renting your property out in the meantime.
Think about DYI if renovating
When it comes to the tough stuff like plumbing and electrical it’s necessary to get the professionals involved. But, paying tradespeople to renovate your entire property can be costly. If you can do certain aspects yourself, you will save money and increase your profit margin. Some examples of areas where you can safely get your hands dirty include:
Look for function over style
A rental property should be functional, neat and clean. A stylish, finished home may not be what you’re looking for, especially if you plan to renovate. A home in need of attention on a great street, in your desired area is going to have better short-term growth prospects once fixed up, then a brand new, finished home would see in a short time.
If you’re looking for something that’s ready to rent out straight away, a finished home may be a better strategy, especially if it’s ready for tenants straight-away.
Use your head, not your heart, when choosing a property
Remember that you’re looking for a property that will either appeal to a large array of buyers or renters, not a property that you yourself love.
So, think objectively, and look for the essentials that appeal to the broadest demographic. Here are some features to look out for below.
Think carefully before negatively gearing
If the rental income you receive does not fully cover your loan repayments and costs, your property will be negatively geared.
This can have tax advantages but it will also lead to financial stress if you don’t have the cash flow to cover loan repayments, rates or body corporate fees. This strategy is often chosen by investors who are seeking long-term capital growth in their investment, and the expense of short-term profits.
It’s best to seek independent financial advice before choosing an investment strategy.
Still paying off your own home?
It isn’t necessary (or usually realistic) to have your own home completely paid off before purchasing an investment property. What is important is to have a good amount of cash to invest with, either to use as a deposit, to help renovate or to cover any unforeseen costs. You may also have enough equity within your own home to help with the deposit needed to invest in a property, so have a chat with a mortgage broker about your options.
Do your due diligence
As with any property purchase, it’s always critical to do your due diligence. Before signing a purchase contract, make sure you organise for a building and pest inspection to be done and thoroughly read through these reports to avoid expensive repairs later.
Don’t give up!
It can be a long process finding the right investment property, but it pays dividends in the long run and could set you up for financial independence down the track. Who knows, it may be the stepping stone towards a whole investment portfolio for you.
Once you have found that Investment Property call Michelle on 0404 554 077 and she can step you through the process of having your Property managed by Harcourts South Coast!
Article provided by Harcourts Australia.
Investors who purchase existing properties to assume that any renovations which have taken place prior to settlement cannot be claimed. Those who assume this, couldn’t be more wrong. Deductions for income producing properties can be claimed in two ways; as capital works deductions for the building structure, and as plant and equipment depreciation for any easily removable assets. While restrictions apply to capital works deductions based on the construction completion date of the property, there are no date restrictions for plant and equipment assets. Deductions for plant and equipment assets are based on an individual effective life outlined by the Australian Taxation Office and calculated from their depreciable value from the date of settlement.
While income producing property owners can claim capital works on any property constructed after the 15th of September 1987, often properties older than this will have undergone renovations since this date. Owners of both old and new properties can claim renovations done by previous owners so long as the work was commenced within the legislated dates. Unlike plant and equipment assets, capital works deductions will be calculated based on the historical cost of construction and deducted at a rate of 2.5 per cent per year over 40 years.
For example, an investor purchased a property originally constructed in 1993. A deck was added to the property in 2005. The owner is eligible to claim capital works deductions for the remaining eighteen years on the original construction and thirty years on the construction costs involved in the deck at a rate of 2.5 per cent per year.
To discover what depreciation deductions you can claim in an investment property use the handy BMT Tax Depreciation Calculator or contact one of BMT’s expert staff on 1300 728 726.
Article provided by BMT Tax Depreciation.
Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Please contact 1300 728 726 or visit www.bmtqs.com.au for an Australia-wide service.
When it comes to buying investment property, is rental yield the iron-clad indicator you can take to the bank? Or is it another statistic that can mislead or misrepresent the potential of a property? If you’re looking for investment property, consider rental yield as one tool in your kit, albeit an important tool. It indicates the possible annual return on investment, over time, in comparison to the purchase price.
Rental yield is calculated thus:
Typically, weekly rent is around .1% of the purchase property, so the yield on a typical investment property is calculated thus:
Because it doesn’t include a host of other variables, such as cost of repairs, depreciation, insurance, property management, and rates, investors should not look to yield to determine whether a property will be either positively or negatively geared. This can only be achieved through developing a cash flow projection.
Neither does the yield figure indicate or factor in possible capital growth. In fact, on many occasions, a property with high yield will be likely to offer low capital growth overtime and visa-versa (although there are exceptions). For example, many investment properties in Australian mining areas are currently offering yields of over 8%, however the prospect of long-term capital gain – which what ultimately investors are seeking – is slim. On the way to choosing an investment property, a high yield is important, but not to be used in isolation when making the decision. The Holy Grail when it comes to investment property is a high yield dwelling in an area that promises capital gains. Throw in low maintenance costs and a great Harcourts Property Manager and you have the full package!
Article provided by Harcourts Australia.