Property investment is big business in Australia. It accounts for 60% of the banking system’s assets, and over half of Australians’ wealth is held in residential concerns. That works out as $6.6 trillion over 9.6 million homes, or a respectable three times the total value of superannuation funds.
After over 25 years of economic growth, Australia’s booming property market has created revenue generation opportunities that make it attractive to become a property investor. These opportunities involve the purchase of a house or unit (or several) with the aim to improve that property and either leasing or selling it outright to gain a healthy return on investment.
With adequate planning and the right strategy, property investment can be a solid ticket to securing your future financially. Before you start however, it’s smart to know the best practices for being a property investor to have a clearer path towards success.
Personal Financial Fitness
Start with yourself.
Almost everybody will have their own property investment tips, but the first step is to assess your actual investment viability based on your own financial circumstances. Being financially fit means you possess the excess personal funds to cover your own needs for at least 6-12 months, or that your financial history is reputable enough through having good credit and a low debt rate. If you have additional assets, you can also borrow against them. With these criteria met, you will, of course, have access to more preferable rates from lending institutions.
Do your homework and be honest with yourself. Stick to a monthly budget and adequately map out ahead of investment time by creating a business financial plan. This strategy will help you benchmark your progress, so you know your essential costs are covered, giving you room to focus on your investments.
Don’t Jump the Gun
Approach things with a stable attitude, and don’t jump at the most unbelievable opportunities. Bear in mind, most successful investors start small with saved money, then gradually scale up their acquisitions to develop a solid portfolio. Research indicates the most desired feature in residential investment projects is an experienced manager, one who delivered stable returns with low debt on a diversified portfolio.
If you’re serious about a full-time career in property investment, plan for the long-term. We also encourage you to consult with experts who can help you make the right decisions in your property investment strategy. For example, when searching for property, it’s important to know which one best fits your investment strategy. At Calla Property, we’ll help you find the right one for your needs through our research methodology Calla Property Insights.
The Australian housing sector is in growth mode. In 2015 alone, 236,900 dwellings were greenlit for construction, and this means you need to apply the ‘location, location, value’ rationale to your property search. Focus on emerging areas that cater to locally robust employment centres and always follow the jobs and money that will underpin solid residential demand.
The value quotient comes by searching for specific properties in these locations that show certain aesthetic qualities that could use a light renovation. The aim here is to find workable properties that only require minor cash input yet are priced competitively. Also, consider that land appreciates, and buildings depreciate as a working rule of thumb, so anywhere with high land content has a good chance of increasing in value over time. Land also offers future reuse opportunities; you can sell it to be redeveloped if needed.
This doesn’t mean though that apartments aren’t a good choice. Those located within CBDs will always be in demand given the constant supply of work and business opportunities. Apartments also offer several benefits, such as easier maintenance and relatively lower purchase costs compared to houses. Choosing which one is right for you depends on your strategy, so give it careful thought and consideration.
Being geared, neutrally geared, or negatively geared sounds confusing. Simply put, gearing means borrowing money to invest. This strategy can help you speed up your ability to make money by increasing your available investment funds. If the after-tax income and capital gains return of the geared property investment exceeds the after-tax cost of actually funding that investment, then the strategy works.
If you make savvy investments in sound properties, your long-term gains will be more than your borrowing costs. Be aware though, if your investments are losing cash, then a gearing strategy could increase your net losses. When the interest you owe exceeds your investment income, you’re negatively gearing. Since this is losing money, you can likely only sustain this strategy if you’re already accruing a high income elsewhere. If not, structure your investments to run positively.
Compound and Diversify
If you’re building a portfolio, you need to work the numbers in your favour. The first purchase may often be the most difficult but compounding and leveraging your accrued value will make the next acquisitions simpler. Again, this may require years, but you’re in this for the long-term.
Once you do own a portfolio, the risk increases because catastrophic events can wipe out all your holdings. Think fire, flood, and negligence. Diversifying means separating your acquisitions so that, if the worst happens, a consistent income stream survives. Plan adequately with risk insurance on your investments so you can stay in control of your business.
A Sensible Approach
Best practices mean applying common sense, logic, and strategy when structuring your approach to developing your property investment career on your own terms. Do what works, within defined planning, and follow the resilient growth opportunities that may let you upgrade cheaply to make larger initial returns.
As with other major financial decisions, research and planning is crucial part of property investment. This is what we at Calla Property specialise in. Through our holistic, research-driven approach on building an investment portfolio, we’ll find and select for you the property that works best with your strategy, at the right time and at the right value. This is a free service, so we encourage you to get in touch with us and fill out this form so we can start working together.
Disclaimer: This article is compiled for information purposes only. No part of any information or data given here is intended as advice.