1. Capital growth comes primarily from land
Land is in limited supply and therefore demand increases. If you look at property values and the breakdown between the value of the land and the building you can see where the real value lies. Land appreciates while buildings depreciate.??For the best capital growth look for at least 30% (we try to aim for 40%+) land content in the property you are investing in. For this reason investment in units can be a trap because land content is usually less than 15% of the purchase price. The higher the land content – the greater the capital growth.
?2. Buy properties that appeal to renters?
For your investment property to be successful you need tenants. Therefore you must consider their needs to that your property is always occupied.
- Shopping – make sure your investment has a large shopping centre within ten minutes
- Lifestyle – lifestyle choices are also very important – look for parks, proximity to beaches, theatres, movies and other points of interest.
- Jobs Catchment Area – tenants need employment, so look for properties that have multiple industries within thirty minutes.
- Schools – look for a selection of schools and early learning establishments within five minutes
- Transport – transport is going to be a big issue in the future so make sure there is good access to public transport and to major arterial roads.
- Owner-Occupiers – good investment areas have a high level of owner-occupiers so look for suburbs that have at least 70% owner-occupiers.
3. Buy new property
There are three main reasons why purchasing a new house over an older existing property is beneficial.
- The depreciation amount is significantly higher therefore creating a better tax benefits.
- The building has a construction warranty and maintenance will be negligent which helps reduce holding costs.
- Tenant appeal
4. Make the most of tax benefits
- Negative gearing – This means the costs of maintaining the investment property can be offset against the income generated through renting. If a shortfall results, this can be written off against earnings thereby providing a tax benefit.
- Deductions – Landlords can claim various deductions – including interest on the mortgage, insurance and property management fees.
- Depreciation – This is the decline in value of an asset over a period of time. Tax laws allow investors the ability to claim the depreciation of the building, fixtures and fittings of their investment property. This creates another deduction, which can be claimed against earnings providing a tax benefit. Why does the government provide this tax deduction? The reason is that they want Australians to be financially independent so they will be less reliant on government financial support.
5. Find a good loan provider
One of the advantages of property is the ability to leverage. Most banks consider residential real estate as prime security and some will lend up to 90-95% of the property's value. To make the most of this leverage opportunity find a loan provider who will:
- Lend 90 % of the property value.
- Disclose the security value of the property prior to purchase
- Take 80% of the projected rental income into account when assessing the investor's ability to repay the loan.
When the value of one property has increased by 10-15%, the equity can be used to buy another property. Find a loan provider who understands this! ?
6. Think long term
Good investment requires a long-term strategy. Use your capital growth to accumulate a property portfolio – and hold on to it. Time is the key. Property investing is not a get rich quick scheme. It is often said that it is time in the market not just timing the market where you make your real wealth.
The key to wealth building is to buy – and hang on to it while the value of your assets grows.
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