Investing In Property

Why invest in Property?

How do people grow wealth in property?

A lot of people invest in property because of rent returns and the fact it may reduce taxable income.  These are small advantages and by products of the real power of property.  The reason why 85% of the BRW rich list made their wealth from property is because of Capital Growth.  Properties in Australia over its history double every 7-10 years and closer to 7.5 years. This means buying good properties in growth areas and holding onto those properties long term and earning compound interest on you investments.  That is growth on growth.  For example if a property is purchased for $300,000 and is growing by 10% per year then after one year it would be worth $330,000.  The next year the property increases 10% again but this is on $330,000 not the original $300,000 taking the value to $363,000 in year 2.  If you had 1 million dollars of property and held those properties for 10 years and on historical growth rates your portfolio would be worth 2.71 million or a gain of $170,000 per year.

Why are so many investors looking at South East Queensland to build wealth in property?

The biggest reason is the population growth and Supply and Demand.  At present growth rates we are estimated to be 2000 houses per year short on what will be required.  Great weather, employment, infrastructure, tourism and pro-active state and local governments are reasons property prices are driving upwards.  This is not expected to slow. There are other hotspots booming at present in Australia.  The secret is to be able to recognise these areas and select good investments there.

Using equity to build a property portfolio.

If you were looking to invest and you have equity in a property you are in a great position to use that equity to get a greater exposure to a growing market.  Most people have all their money tied up in one street in Australia.  What if you could use some of the money to get a great exposure to a great market?  This is the power of gearing.  Where would you build wealth faster?  By having $500,000 exposed to a market growing at 10% per year or 2 million exposed to that same market.  Simple maths, the first person will earn $50,000 in equity and the 2nd person will earn $200,000.  I can show you how you can use this equity to buy a property with no money down and enough money to cover the shortfall on repayments for many years to come.  But what if during this time you keep putting rents up past inflation.  The result, a positive cash flow portfolio in 7-10 years!

Where do you buy?

Remember the power of property and the greatest path to build wealth is buying good properties in growth areas earning compound growth over a long period of time.  Once you have equity, release and duplicate.  Two sayings ring very true to me, "There is a great deal within a block of where you live" and "You can buy a dud property in a good area".  Look at where you are buying.  Draw a 5 kilometre circle around this property and assess what is in the area.  Does it have schools, hospitals, shops, recreation facilities, transport?  Is it near water or on a Golf Course?  What are the demographics of the population?  What are the large companies like Bunnings and Harvey Norman doing?  Check other sales in the area and most importantly get an independent valuation if you cannot justify and feel the property is over priced.  Remember Land appreciates, buildings depreciate.

Getting the Maximum from your investment property!

Many people are not aware of how much and what they can claim from an investment property.  If you are investing in property make sure you get a Quantity Surveyor to complete a depreciation schedule.  You will be surprised on what and how much you can claim back.  For example, did you know you can claim a shower screen or body corporate assets if you have a property in a complex? Get a reputable property manager to manage the property.  Find a good financier who is able to set up your finance to allow you to buy property after property. Banks will ensure they cross securitize your portfolio suffocating your investing and allowing no flexibility going forward. A good financier will allow you to get the lowest rate, with many loan features and limited fees.  Most important they will ensure your portfolio is not secured by each other and are all stand alone.

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Useful Links

Humby Property Consultants

Property Tax Depreciation

Property tax allowances provide an opportunity for owners of income producing properties to reduce their taxable income, improve their cash flow and in turn increase their rate of return. Humby Property Consultants would be pleased to offer our services to help property investors obtain optimum allowable entitlements.

2008 Property Tax Allowance Qld Brochure.pdf

Australian Securities Exchange

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