Hi all.
Here it is for all you novices investors out there seeking the 'fix all my lack of knowledge' in the 1 pill. Having this info summed up in 14 fundamental steps in the one post seems to be what most of you novice investors have been asking for so, here it is folks!
Now it's up to all you knowledgeable regular's to add some detail for the benefit of all.Simple Rules of Property Investment:
1.
Buy brand new to maximise tax benefit
2.
Buy in a recognised developing area to maximise capital growth
3.
Buy houses as a first choice for better capital growth
4.
Buy in the median price range for the locality to maximise its appeal
5.
Obtain the right finance package
6.
Use the right solicitor, experienced in conveyancing
7.
Use the right accountant, experienced in property investment and look at tax variation
8.
Obtain the right Quantity Surveyors Report to maximise tax deductions
9.
Have the right insurance safety net package
10.
Employ the right property manager who has your interest at heart not the tenants
11.
Don't sell in the short term – hold property long term to maximise return
12.
Refinance only when necessary not as a matter of course
13.
Seek the guidance of professional people when making any decision in relation to property investment
14.
When listening to the 'advice' of 'friends' seek their qualifications and experience prior to taking their advice. Their 'negativity' will often ensure that you both enjoy a poor lifestyle in retirement.
Lastly all, read Robert Kiyosaki's "RICH DAD, POOR DAD".
I agree with some of the things that you said, but not all of them.
I prefer houses over units as the expenses are often less (you don't have to pay strata) but that is only if you are limiting in buying one property. If you have enough money you could buy a block of units or a commercial property.
I don't agree with buying new and maximising tax. It doesn't make sense only to buy for tax reasons. I buy property that makes money first, then if it has a tax benefit that is a plus, but never a sole reason for buying.
Refinancing as a matter of course can save you thousands! Not only can it save you money it can drastically increase your cash flow or it can allow you to extend yourself and buy another property and increase your income.
Choosing a good solicitor and getting your property properly inspected before purchasing is a must! So you are right on the money there. And having a good accountant who knows what they are talking about when it comes to property is a godsend!
All in all I wouldn't classify these as 'rules' to live by. There is some merit to some of the points, but I definately don't agree with all of them
Ryan McLean | On Property
http://onproperty.com.au
Email MeI dont think buying brand new is necessary either. The benefits are in the depreciation and tax advantages, a 12 mth builders warranty ( or longer) and less maintenance issues, but negative gearing territory, which buying new often is, is investing to lose money. Weird long term strategy based on property always going up in value. Like a new car though, I would imagine that new dwellings depreciate too much in the first year or two, in all but a booming market, so if you can pick up a 2 or 3 year old property that is priced well for the market conditions, you will have the tax advantages without the buy new ( builder/developer/spruiker) price. Does anyone agree on this or have experience of this?
No 14 – should be dont seek advise from friends or family only their money.
Ian
http://theblockblog.com
Free Property Investing Information, Tools and Resources for Property Investors with A Sense of Humour.Umm im in the same boat as Ryan – only agree to half.
i would never buy brand new ..there are better ways to obtain the tax benefit then buying brand new…i rather create growth and tax benefit then “buying it”Buy houses as a first choice for better capital growth – Personal choice, not everyone can afford to buy a house in a “established location”.. .some prefer rental yield so they can “afford” to buy their next IP faster. No point having $200,000 equity in your home if you can’t access it simply because you can’t afford to draw this equity out.
Regards.
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
I agree sapphire, that you do not have to buy brand new. In fact, you should always buy, after having done your due diligence, what you can afford – and that is not always brand new. However, if you are paying lots of tax and getting very little back then a new, and negatively geared IP allows one through tax variation (S15.15) to reduce their tax throughout the year by up to half (using the ATO's money) and depreciation on top of that to reduce your tax burden even further. For an example, I have a client who is getting just over 70% of the income tax they were paying prior to their IP purchase through a properly structured, negatively geared property. But this will not work for everyone. As I've already said, you need to invest into what you can afford.
Perhaps I should re-phrase point 1 as Buy brand new to maximise tax deductions OR buy what you can afford. But, BUY SOMETHING!
ALF1 wrote:Perhaps I should re-phrase point 1 as Buy brand new to maximise tax deductions OR buy what you can afford. But, BUY SOMETHING!Yes, but what you say about buying brand new has a lot of sense in it. Depreciation benefits are one of the means of getting a positively geared property.
Fword- i think you mean one of the advantage of a brand new property..dont know abt the +ve part
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
HI im new to this site and i just have a question if someone could help me?….i am looking into property investing and i want to buy land and build like a one bedroom cabin on it as a weekend get away.. say for instance if its just me staying on the property do i need to have a licensed builder to lay the slab and build the frame for the cabin even if i can do that my self because i know that everything you do it has to be checked and approved by council etc?
Yes you can do it your self…but your going to have a lot of trouble finding a bank that will lend you the money.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Shape wrote:Fword- i think you mean one of the advantage of a brand new property..dont know abt the +ve partWell, I'm no accountant, so I'm getting out of my depth here. But consider the following simplified example on a rental property:
Interest on loans (per annum): $20,000
Total rental income (per annum): $18,000
Shortfall (per annum): $2,000 (assuming no tax refund)Less depreciation benefits which constitute and after-tax refund: $2,200
Result: a positively-geared property returning $200 per annum.
Therefore, a property that would normally cost money to control (ie. have negative cashflow) can actually become positively-geared (ie. positive cashflow occurs after depreciation benefits are taken into account). This is not the same as a positive-cashflow property that has income exceeding expenses, regardless of depreciation.
what i meant was…a lot of brand new properties are hardly positive geared…you be lucky to have a neutral Gearard property.
especially if its a house.For example:
Brand new
5 Defries ave, Zetland, NSW 2017
http://www.realestate.com.au/property-apartment-nsw-zetland-106677540
Brand new-
$708,000 – 2 bedroom, zetland. – expected rent of $600 per week., yield of 4%…and def -ve
depreciation – can be quite high — $15,000 for 1st year.Existing — less then 2 year old—
Same Street
3/1 Defries Avenue Zetland
http://www.domain.com.au/Property/For-Sale/Apartment/NSW/Zetland/?adid=2008872006
$569,000 … currently getting $575 per week
depreciation – Are high as well – $11,000 next 2-3 years.You do the math
End of the day depreciation can be “Created” by doing renovations etc if required…also if your on a average-just above average income…having a high depreciatable property for the 1st 1-3 years is pointless – just my 2 cents
For me most, if not 95% of new property are over priced and targeted for “owners” and not for investors.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
WOW Michael! I did the maths too but you forgot to factor one HUGE factor into those figures – HOW MUCH INCOME TAX ARE YOU PAYING?
You do the maths on a combined household income of say a modest $100K (split $50K for each partner with both PAYG). You're going to be losing what $25-$35K in tax and probably battling to get back more than 10% of that tax. Multiply that tax left in the governments coffers over just 10years and you've effectively lost over a QUARTER to a THIRD OF A MILLION DOLLARS IN TAX Now factor in tax variation of a conservative $10K and all of a sudden you have a tenant AND your taxman (ATO) subsidising your brand new, maximum depreciable IP. That's an extra $100K this couple can use to pay off their IP Loan, existing Home Loan, whatever. All of a sudden, fwords prior statements are looking quite accurate.
I have read hundreds of posts on this very good forum and the one big constant is so many contributors gives opinions and advice with 'blinkers on'. Before you go investing into any IP you MUST look at the fundamentals of affordability, correct loan structuring, tax minimisation, infrastructure, future growth, and so on – in other words, EVERYTHING! Is it any wonder so many novices to Property Investing either don't know where to start or simply don't start at all because it is so difficult to get COMPLETE info on their individual circumstances?what you say is true…and i have taken that in consideration..but on a long term perspective-
1. Your buying at a higher price
2. Depreciation will eventually equalizesI still stick to my last statement “End of the day depreciation can be “Created” by doing renovations etc if required…also if your on a average-just above average income…having a high depreciatable property for the 1st 1-3 years is pointless – just my 2 cents “
There are billions of ways to invest and of course every strategy has it’s advantages and disadvantages…but i have seen so many FHO buyers even some seasonal investors who regretted that “off the plan purchase” .
It’s not my style to see the “money” at the end of the tax year…i rather have access to the money now and some later- “Depreciation does not feed the family- especially when its tough”
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Shape wrote:For me most, if not 95% of new property are over priced and targeted for "owners" and not for investors. Regards MichaelFair call. Just thought that, for the purposes of this discussion, I should at least point to the possibility, rather than ruling out the '+ve part' for brand-new properties entirely.
I agree with your last 2 statements Michael. Buying off the plan is where so many of these east coast 'wealth creation' companies make such obscene amounts of money. I believe it's always better to buy under 5 years old to maximise depreciation but, as you correctly stated in your last statement, not if affordability becomes a problem. Again, each Investors individual circumstances must be looked at and ultimately, it should be the Investor themselves that decides what is best for them – not some glorified developer with an off-the-plan, neatly wrapped and heavily padded IP!
There is the option of buying in a rezoning area, land banking for a few years and developing yourself to hold. Renovation is another way to obtain depreciation benefits.
I find a few draw backs in new property include:
1) You're competing against FHOG and they are normally market ignorant, emotionally attached and willing to pay above true value.
2) Limited scope to add value.
3) Green fill areas are often further out of the city. Historically, the longest period of sustained high growth comes from demographic enhancement. A bad suburb turning yuppie (often close into the city – but not all suburbs are like this). Brand new suburbs have a similar effect when new infrastructure is being put in, but not as sustained. It’s often too late once the suburb is already developed to benefit from this growth.
4) GST, project marketer fee and developer profit margin factored into the price of brand new properties.fWord wrote:Shape wrote:Fword- i think you mean one of the advantage of a brand new property..dont know abt the +ve partWell, I'm no accountant, so I'm getting out of my depth here. But consider the following simplified example on a rental property:
Interest on loans (per annum): $20,000
Total rental income (per annum): $18,000
Shortfall (per annum): $2,000 (assuming no tax refund)Less depreciation benefits which constitute and after-tax refund: $2,200
Result: a positively-geared property returning $200 per annum.
Therefore, a property that would normally cost money to control (ie. have negative cashflow) can actually become positively-geared (ie. positive cashflow occurs after depreciation benefits are taken into account). This is not the same as a positive-cashflow property that has income exceeding expenses, regardless of depreciation.
The problem is that you usually pay a premium for a new house, so your rental yield will be lower to begin with.
Like all investments it pays to do your homework before you take the plunge into property investment. But even with rising interest rates, a sound strategy can pay off. The shortage of rental properties, combined with rising prices in most markets, means that if you choose the right property and make sure you keep a close eye on your investment, you could reap the rewards.
I like it! Broken down in 14 simple steps. You don't have to agree exactly with all the rules but you can't argue with the logic behind the fundamentals!
You must be logged in to reply to this topic. If you don't have an account, you can register here.
