The average mortgage size in Australia is around $600,000. If your investment property grows at 6% per annum, that means it will double in value in 12 years. Therefore, a $800,000 investment property will be worth around $1,600,000 in 12 years’ time, and your capital gain is $800,000. If you then sold the investment property, after capital gains tax and selling costs, your profit would be approximately $600,000 and you could pay off your own home in full.
There are also advanced strategies our Accounting Experts can assist you with.
Interest rates are at historically low levels. You can take out the biggest variable cost with property investing by fixing your loan to provide certainty with your cash flow. Your finance broker or lender will be able to provide you with the benefits and costs of fixing interest rates.
Besides fixing your loan, rents generally increase over time. The increase in rent over time generally more than offsets the cost of any future interest rate rise.
Technically yes, however the goal is to build a property portfolio that will give you the best capital growth and cashflow over time so you can achieve your goals. You need to be clear what you want to achieve before buying an investment property. The best investment property is not usually the same property you’d live in down the track. By investing well, your chances of being in a financial position to buy a property that you’d like to move into in the future is much higher.
Generally, it takes between 0-4 weeks for a property to be rented out after completion, depending on the supply and demand in the area. Having an excellent property manager is crucial – we put you in touch with the best property managers who will help you find the right tenant quickly. Property supply is in massive shortage in most major cities in Australia.
The two main reasons investors don’t find a tenant quickly is: over-supply in the area; and/or, the price is too high. Be pro-active and adjust the rent until you find the market price. It is better to have a property tenanted for a few dollars per week less, than to hold off for an extra few weeks in hope of getting a little more per week.
Make sure you have a buffer of extra cash reserves or additional funds available in a loan facility before investing. This way, if you lose your job, you’re not forced to sell your property. Income protection, trauma and life insurance are highly recommended. We can refer you to a specialist in this area if needed.
If you don’t know the answer to the following question, then you’re in the majority and probably about to make an expensive mistake: “How long can a building be depreciated for?” Most people answer “seven” or “ten years”, but they’re wrong and are effectively buying ‘blind’. The correct answer is 40 years.
Typically an existing property will cost the average investor around $25,000 per year plus any unexpected maintenance costs. Full stamp duty is also payable on an existing property, which means the property will need to grow by around 5% just to break even. $25,000 per year limits investors to a portfolio of usually one investment property, as they cannot afford multiple properties at $25,000 per year. Statistically over 40 per cent of investors will sell within five years and most of them will break even or make a loss.
The main advantage of buying new property is the cashflow – typically costing less than $100 per week. With the depreciation of the building, fixtures and fittings and low maintenance costs, a typical new property is easy to duplicate. Building and structural warranties, as well as stamp duty savings are among many reasons why new properties are a superior investment compared with existing properties.
Often there are large parcels of vacant land near new housing estates; however, this doesn’t mean a property in a new estate will not grow in value. Choosing the correct property in a quality estate where supply and demand is in your favour is essential.
Land in new estates are released in stages, and as stages are released, the price of land rises. In most instances, the increases are $5,000 – $10,000, however, it is not uncommon for land prices to increase by $25,000 or more in a stage, especially when demand surges. Demand typically surges in an area as new infrastructure, transport, schools, shops, and parks are proposed or completed. A large estate will often have in excess of 50 stages, so capital growth in the correct estate is generally a given.
There will always be cheaper properties on the internet, but there’s a reason. The same principle applies to cars, watches, perfumes, etc. Generally, you get what you pay for. There are many reasons for this: inferior property, old property, worse location, bait advertising by developers (these properties appear cheap, but may not include things such as site costs, driveways, landscaping, towel rails, toilet roll holders, fencing, window locks, TV antenna, and often these properties have cheap, basic inclusions that would not appeal to an owner-occupier).
A bargain property might look attractive on face value, however, there is always a reason why a property is priced low. If you buy the cheapest property in the area, how appealing will this be to a tenant or future purchaser? If you sell the property, will it appeal to an owner-occupier? How will the property perform compared to other properties in the area? Would you rather have the cheapest property in the area, or one that is appealing to tenants and owner-occupiers? When it goes up in value, it will still be the cheapest property in the area.
It’s almost impossible for a non-professional to jump on the internet and compare one property to another, as there are so many factors to consider other than the asking price. We have done all the research and due diligence for you and your bank will arrange a bank valuation for you as part of the buying process.
There is a saying; “You don’t know what you don’t know”, and this is especially true when it comes to building a safe and successful property portfolio. Many rookie investors (and plenty of ‘seasoned’ ones) think they know enough, but really know very little (and they don’t know that they don’t know it)
To avoid cashflow problems, a tax withholding variation is a great tool for investors, as it improves your cashflow on your investment property portfolio. Without a tax variation, you would need to pay all the costs on your property and recoup the tax deductions when you submit your tax return at the end of the financial year. A ballpark figure for out of pocket costs on an investment property is around $10,000 per property per year. With three investment properties, this would be around $30,000 you’d need to find during the year, then wait to get your tax refund.
A tax variation allows you to receive your tax refund each time your salary is paid. The tax department tells your employer your new tax rate and, therefore, your take-home pay increases. You can apply for a tax variation yourself, but it is recommended to use a good accountant to prevent errors.
Whilst commercial works for some people, the risk levels are much higher. Vacancies can be for long extended periods and can be impacted by economic conditions. Lending on commercial property also has a different set of rules: higher deposits required, higher interest rates, and the lender can ask for their money back at any stage (unlike residential real estate).
