Property investments can bring many financial benefits across short, medium and long term periods. For instance, a negatively geared property in the short term will allow you to minimise your tax while offsetting the holding costs – in the medium term the property should become neutrally or positively geared – and in the long term, if executed correctly, the property investment should have experienced strong capital growth allowing you to sell for a nice profit.
When deciding on a property investment, it is important to assess your financial situation and the type of investment that suits you. This can be achieved by talking to a property investment group, like Tony & Leo Prestige, as we have researched and carefully hand-picked all of the properties for our clients.
Like any investment, property investment requires knowledge and an understanding of the property cycle and key marketplaces. To minimise investment risks, it is important to consult with industry professionals, and have an investment strategy tailored to your individual situation.
Starting a Property Investment Portfolio
More than one property investment is commonly referred to as a property investment portfolio. It is designed specifically for the purpose of holding a variety of properties that will help you achieve your financial goals. In order to make your portfolio work for you, it is important to follow some basic rules:
- Detach yourself.
Buying your home (principal place of residence) is an emotional choice – and buying a property investment is a business decision. For this reason, it should remain a purely financial decision based on your long term goals rather than feelings and preferences.
To ensure optimal success, make sure you have a variety of properties in different locations – property cycles in Australia’s capital cities are different. For instance, trends show that when the Sydney property market tends to swing up, it is then followed by Melbourne and then Brisbane. By diversifying you are simply spreading your risk. It is also important to ensure that your overall investment portfolio is balanced with property and shares which also lead completely different life cycles.
- Consider your options.
With the growing undersupply of property in Australia’s cities and surrounding areas, it is increasingly cost effective and beneficial to invest in a unit or townhouse. A unit or townhouse property investment can in fact yield the same returns and capital growth as housing, and in many cases surpasses the returns as it is financially possible to purchase closer to the CBD.
Getting the Most out of Your Property Investment
To get the most out of your property investment, you need to be aware of all the aspects of property investment to avoid, as these may affect the financial success of your goals in the long run.
Some of the common problems that can affect your success are:
- Incorrectly financed
- ‘High Maintenance’ properties were purchased
- Investors missed out on claiming the highest possible amount in non-cash deductions
- Low rents and high vacancy periods
- Paying too much for the property initially
- Low capital growth potential
To minimise these common problems, it is important to work with the experts including a property tax accountant and a well trusted property group who show great due diligence when selecting properties.
How Can Equity Help?
Buying a secondary property for property investment can sometimes be daunting, especially after buying your home (principal place of residence), which generally needs you to come up with a deposit of up to 20% of the purchase price. What you may not realise, however, is that if you have owned your own home for some time, there is a good chance you will have built up equity in your property. The same goes for any investment properties that you may be holding.
You can access equity in a situation wherein you have paid off some of the loan and/or your property has increased in value. Sometimes a bank/lender will allow you to use this built up equity instead of a cash deposit in order to secure your investment property. This option is used by many investors to accelerate the purchase of investment properties and to build a portfolio – just keep in mind that this property investment option will tie the properties together so if there is ever a default, both properties will be at risk. This is why the selection of your investment property is absolutely critical to the success of your financial freedom.
For more advice on property investments contact LV Prestige today.