Investment Property Strategies

When building an invest and hold portfolio

 

“Grow and Secure Wealth through astute Property Investment!”

 

 

A question often raised is “should I be negatively geared or should I invest in a Positively Geared Investment Property?”

 

We ask : Why negative gear and pay in $’s when you could be positively geared and earn an ongoing income for life?

 

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Recommendation

Start with your end goal in mind; match the property type to your end goal and to your investment strategy :

When investing in property, successful people strive for Financial Security, Lifestyle Choices or Generational Wealth … which are you fighting for?

Remove emotion of unfounded media fears intentionally instilled in people

Be careful of who you listen to, we tend to seek the answers and advice from people or the media we want to hear

Undertake your own due diligence by reading Industry Reports and Professional Analysis and Research. You do not have to be in that location to know what the report is telling you is accurate. If a new hospital or university is being built in the report whether you go to that location or not this infrastructure is being built and will attract population growth

Include emotions of “How much will I need at retirement in order to maintain or achieve the lifestyle I want for me and my family?”

This is your focus!  Match the location, the dwelling, the rental yield, the potential capital growth to meet your end goal !

You will never tick 100% of your preferred boxes, always revert back to your reasons WHY (end goal) and if the investment vehicle offers obvious abilities to help you reach your goal then commit to your goal through an informed decision

Download “Your Own Reasons Why” document here , tick all the boxes which appeal to you as your own reasons why you want the investment property or to build your investment property portfolio. These are your reasons why you want what you want out of your life – take ownership of them and commit !

 

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Fundamentals Required

Invest where market fundamentals are strong soundly underpinning your investment

It makes sense to follow government and industry who have done their due diligence and the numbers; and if they invest in that location wanting a return on their investment then you too would want to do so

• Follow where Government Invest and Spend on new infrastructure (today and planned & committed to in the future)
  
• Attracting Industry into the area who invest and spend on infrastructure
  
• Both Government and Industry want a Return on their Investment
• Both naturally create and provide new Jobs now and going forwards
  
• New jobs attract population growth looking for employment opportunity
• Population growth in turn places upward pressure on supply of property in that location to own or rent
  
• This pressure then increases property value and rental yields based on the principal of supply and demand
• Meaning that historically, government and industry spend results in prices of property to rise giving you a return on your investment in that area
  
• Australia is evolving, by design government is decentralising the major CBD’s and creating employment hubs outside of capital cities resulting in the emergence of Satellite Cities for jobs and lifestyle. These satellite cities thus present well for investors

 

 

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Advantages of Negative Gearing :

• Negative Gearing is when you put in more than the rent you are earning to cover your other property expenses
• These expenses then becomes a tax deduction, meaning you will pay less income tax
• *Generalised return on your investment 20% – 30% pa
• Will be able to secure one or two investment properties based on what the banks will tend to lend you

Disadvantages of Negative Gearing :

• You are still putting in $’s into your Investment
• Thus primarily relying on Capital Growth to make up the shortfall and some profits over the life of ownership
  • Because not all properties are well suited to investment, one has to get the decision making right upfront or suffer the financial consequences of a liability (when you were actually looking for an asset)
• Limited by how much you can borrow

 

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Positive Gearing :

• When your rent is high enough to cover all your outgoings
• Plus you receive on ongoing income for the life of ownership
  
• Yes your tax deductions are now lower, yet the upside is you are not putting in any money into your investment
• *Generalised return on investment 30% to 50%
• Banks far more comfortable lending to a property portfolio which is Cash Flow Positive
  • Meaning you can secure and grow a larger investment property portfolio (than in you were negatively geared)
  • The result is you achieving your own financial goals that much sooner

 

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Types of Property and the Gearing :

Using an example of a person earning a Taxable Income of $80,000 and putting down a 10% deposit, an interest only rate of 6% (including other costs and depreciation benefits)

 

Existing Older Property

• Tends to be far more negatively geared, has less depreciation benefits and more than likely a lower rental income / yield
• Higher ongoing maintenance costs
• Full Stamp duties which are a pure expense and not tax deductible
  
• *If the property is valued around $45o,000 you could be negatively geared by as much as $250 per week out of your pocket

 

Off the Plan and New Property

• Will be a more tax efficient investment and thus require a far lower negative gearing or be cash flow positive to you, versus an existing older property
• Potential of lower Stamp Duties become a significant savings and views as cash in your hand
  
• Lower maintenance costs over the life of the investment
  
• Potential of a higher rental yield (a difference of .5% up to 2.5% difference)
  
• Less out of your pocket to fund your investment over the life of your property ownership
  
• *If the property is valued at $650,000 you could be negatively geared by as little as $14o per week (@ 6% interest only)
  
• Further information on Off the Plan and new properties click here

 

Comparing an existing older property valued at $500,000 and next door one they will build valued at $600,000

Did you know :

You could be over $500,000 better off …

investing in a new, more expensive property next door to the older existing one !

This is what we refer to as investing by the numbers (by removing any emotion)

• The above table makes use of 6% interest only, a 10% deposit, using a $100k taxable income and other market related data

 

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Investing in Duplex Homes or Dual Living homes as investment Property

• Being new or off the plan the same financial advantages as above
  Stamp duty is on land value only, considerable savings to you
• Your investment will be Positively Geared*
• Returning you a generalised estimate of 40% to 50% on your investment
• Meaning that after your initial deposit you may never have to contribute towards your investment again
• * If the property is valued at $500,000, you could be positively geared by around $125 per week into your pocket
  • Amounting to an estimated *$60,000 – $80,000 of cash to you over 10 years
• Tax Credit could be around $6,500 pa utilising depreciation allowances
  Potentially saving you a further *$55,000 to $70,000 over 10 years
• Ask us for more information on how the numbers (estimated above) could be using your taxable income and other  here

 

House and Land

• Securing a House and Land property (Duplex, Dual Living or stand alone dwelling) potentially offers higher capital growth
  The closer one is to a city, town or new major infrastructure the better the probability of sound capital growth
• The rent tends to be around 5% of the value of the property
  
• Potentially ensuring these investments are Positively Geared in your hands
• Our strategy is to secure house and land in growth locations soundly underpinned by current and new infrastructure in suburbs inhabited mostly by owner occupiers
  Less competition for rent, and one day can sell to an owner or an investor (wider target audience)
• Depending on location an investment of $400,000 to $600,000 will secure you your investment
  • 3 bed or 4 bed house
  • Land size 250 sq/m up to 700 sq/m sometimes but rarely 800 sq/m

 

Townhouse

• Securing a townhouse has some land component and potentially offers higher capital growth
  The closer one is to the CBD, town or new major infrastructure the better the probability of sound capital growth
• Invest where most people want to live and can afford to live
• The rent tends to be around 4% – 5% of the value of the property
  
• Potentially ensuring these investments are Positively Geared in your hands
• Our strategy is to secure townhouses in growth locations soundly underpinned by current and new infrastructure in suburbs inhabited mostly by owner occupiers
  Less competition for rent, and one day can sell to an owner or an investor (wider target audience)
• Depending on location an investment of $600,000 to $750,000 will secure you your investment
  • 2bed or 3 bed townhouse

 

Apartments

• Securing an apartment as your preferred investment vehicle does lend itself to capital growth
  The closer one is to the fringe suburbs of the CBD (up to 10 to 15km) , town or new major infrastructure the better the probability of sound capital growth
• Invest where most people live and can afford to live
• The rent tends to be around 4.5% to 5% of the value of the property
  
• Our strategy is to secure boutique apartment developments (50 apartments or less) in growth locations soundly underpinned by current and new infrastructure in suburbs inhabited mostly by owner occupiers
  Less competition for rent, and one day can sell to an owner or an investor (wider target audience)
• Depending on location an investment of $380,000 to $750,000 will secure you your investment
  • 1 bed $380k to $450k
  • 2 bed $560k to $750k
  • 3 bed your rental yield will drop as a percentage of the value but a scarce product and thus could offer higher capital growth potential

*The above numbers are estimations for demonstration purposes, each persons tax situation and rental income could be different but the principle is accurate. It is far more beneficial to invest in a new or off the plan property than an older existing one

 

What we tend to avoid

• Existing and older properties (explained clearly above) the numbers just don’t stack up unless you are going to undertake a major renovation or knock down and build – BUT this comes with it’s own inherent and probably hidden risks
  
• High density projects – too much competition to rent out and sell one day
  • There are certainly exceptions to this
• Investment hot spots – they tend to become oversupplied and lose their shine as a hot spot
• Investment hot spots attracting a multitude of investors and developers supplying typical investment boxes
  • Wrong location and certainly the wrong investment vehicle

 

What we search for :

• New properties
  
• In Growth locations
  • Opportunity for Capital Growth
• In which owner occupiers are the predominant group
  • Resulting in stronger rental yields, means more money in your pocket
• With sound fundamentals underpinning the location and type of dwelling
  • Public Transport, Shopping, Hospitals, Schools, Universities, Entertainment, Lifestyle Choice etc

 

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Who can own the Property(s)

• In your own name or joint personal names
• Under a Trust Fund or a Company
• In a Self Managed Super Fund (SMSF)
  • more on buying property in Super here

*Our clients build investment property portfolios in their names or a trust and also build a portfolio in their SMSF. Keep your investment decisions, budgets, borrowing capacities and strategies separate in Super and outside of Super.

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Your accountant or financial advisor could advise you whether you would want to be Positively or Negatively Geared and in what entity to secure the property(s) in, based on your taxable income and personal circumstances in life, linked to your financial planning goals and strategy

If one could achieve both Positive Gearing + Capital Growth, every investment advisor would recommend that this is the best result you could achieve for yourself.

Your opportunity to grow and secure wealth investing in property through astute and informed decisions is real. How committed are you to your end goal

 

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Recommendation

(Important enough to repeat !)

Start with your end goal in mind; match the property type to your end goal and to your investment strategy

Remove emotion of unfounded media fears intentionally instilled in people

Be careful of who you listen to, we tend to seek the answers and advice from people or the media we want to hear

Undertake your own due diligence by reading Industry Reports and Professional Analysis and Research. You do not have to be in that location to know what the report is telling you is accurate. If a new hospital or university is being built in the report whether you go to that location or not this infrastructure is being built and will attract population growth

Include emotions of “How much will I need at retirement in order to maintain or achieve the lifestyle I want for me and my family?”

This is your focus!  Match the location, the dwelling, the rental yield, the potential capital growth to meet your end goal !

You will never tick 100% of your preferred boxes, always revert back to your reasons WHY (end goal) and if the investment vehicle offers obvious abilities to help you reach your goal then commit to your goal through an informed decision

Download “Your Own Reasons Why” document here, tick all the boxes which appeal to you as your own reasons why you want the investment property or to build your investment property portfolio. These are your reasons why you want what you want out of your life – take ownership of them and commit !

 

* denotes estimations