Are you thinking of investing in property? Maybe you don’t know how to effectively structure your tax and manage your personal finance or how to invest with confidence? Not sure where to start?
Investing in property, as you already know, talking about where the property market is headed (up, down, sideways) is a sure-fire dinner party topic of conversation these days…
Getting started in the investment property market isn’t a game, although it can be fun and profitable, so Property Investments Now has put together the principles of property investments success…well-worth rereading just to keep your property goals on track.
Investing in Property, the fact is everyone wants to give you advice on when, how to invest in real estate, yet often that advice is misguided when you take the market and economic factors into account.
Here are some timeless pieces of advice for both beginner and experienced property investors:
Property investing or real estate is a proven wealth-building vehicle. Investing in rental properties can generate positive income and significant tax benefits, as well as build equity from appreciation over the years.
Although many people can succeed in investing in real estate, rental property investing isn’t for everyone. Take account of your investment preferences and personality before buying property.
Investing in property is a hands-on investing. Do you have time to devote to real estate investing? Are you comfortable troubleshooting problems or hiring a property manager?
Make sure you’re financially structured before investing in rental properties. Pay particular attention to your monthly budget. Most successful property investors build investment portfolios by saving money first and gradually buying properties over the years.
Don’t underestimate the importance of establishing good credit. The best returns on real estate rely upon the use of credit to obtain the leverage of using OPM (other people’s money).
Your home is not an investment property. Your home is an investment (of sorts), but Australian tax law makes it considerably different from ‘investment property’.
If you’re the DIY type or a good project manager, you can make plenty of money in real estate from renovating your own home and selling it free of capital gains tax.
Focus on residential properties in the beginning. Residential property is an attractive investment and is easier to understand, purchase and manage than most other types of property.
If you’re a homeowner, you already have experience locating, purchasing and maintaining residential property. Remember this important point because you’re not buying the property to live in, right?
Among residential property options the top recommendations are for stand-alone houses. The maxim land appreciates, buildings depreciate means properties with highest land content are most likely to appreciate the most longer term.
Get your real estate team in place before you begin your serious property searching. Early in the process, line up your:
- Buyers agent
- Mortgage broker
- Specialist property accountant
- depreciation specialist
- Financial adviser
- Real estate agent…
As a property investor, you need the right resources to identify the most suitable properties and to ignore properties worthy of careful consideration. Move quickly with speed means you can close a transaction which is a big advantage.
Research properties in areas where new developments or redevelopment is heading, these are among the best places to be positioned investing in property. Look for properties which are physically sound, cosmetically challenged and poorly managed.
Be wary of property spruikers promising real estate riches in no time. Too many people have been too greedy over the years trying to ‘get rich quickly’ with property. Property investment requires a ‘get-rich-right’ mentality.
Nail down the best financing terms and keep your banker on his toes. The bigger the deposit you can offer (say, more than 20 per cent), the more access you’ll get to the best financing deal for your first property.
If you’ve got plenty of equity in your own home, you’ve also got the asset that banks prefer in order to lend you money on reasonable terms.
Leverage can boost your rates of return. But too much leverage can be dangerous if the rental market turns and your debt expenses are high. Continually search the market to make sure your financing is at competitive rates.
Use the powers of leveraging and compounding to build your property portfolio. Property portfolios are built through a snowballing effect. Buying your first home or your first investment property can be difficult.
Use the power of compounding and leverage to make subsequent purchases easier. It may take five years to acquire your first two or three properties, in the second five years, you can probably double the number of properties you buy.
Add value because this clearly emphasises the importance of finding good value. Owning property in up-and-coming areas with new development or renovated properties enhances your chances of finding and keeping good tenants with better return on investment.
Another great opportunity comes from properties in great locations that haven’t been well maintained. Research areas looking for aesthetic issues that can be cheaply addressed.
Don’t make real estate investments too close to home. Buying property in the same or next suburb as your home is a dangerous philosophy.
Diversification is important within your property investment portfolio. Avoid having both your home and investment property (unless it’s one of many investment properties) in the same suburb or town leaves you doubly vulnerable to a downturn in that area.
Where to invest starts with an evaluation of the region’s economic trends. If real estate in an area isn’t economically sound, the likelihood of successful property investments is diminished.
You’re purchasing a future income stream when you buy a property so the key is identifying which properties sellers have under priced. Don’t rely on the seller’s numbers when evaluating the potential of a commercial property.
Speak directly with seller to determine history of property and motivation for selling. Don’t rely on historic operating results offered by seller or real estate agent.
Develop your own numbers through evaluating the property with the aid of qualified professionals which are specialists in the physical and fiscal management of real estate.
The buy-and-flip real estate investment strategy can work, just be aware of the downside because buying and quickly reselling property can make fast money in real estate if you time your investments correctly in a rapidly rising real estate market.
However, buying and flipping can cause your profits to be fully taxed and that’s without the advantage of 50 per cent capital gains discount.
Give yourself some ownership options. If you’re building a portfolio and buying with your partner, consider how you structure the ownership of the property to leave yourself some options to minimise tax when it comes time to sell.
Think about gearing in terms of what you want out of your investment. Everyone’s heard of negative gearing, however negative gearing means ‘losing’ money on an annual basis, which can make sense for some investors, especially those on high incomes.
If you’re not on a high income, neutrally geared or positively geared property may better provide you with what you want from property. Even the best laid plans can be destroyed by one catastrophic event.
Do you believe you can get away without proper insurance? Insurance isn’t only for home and contents and landlord’s insurance. Proper investing in property includes personal risk insurance, so you can keep your property investments afloat even if disaster strikes…make sense?
Investing in Property