Building wealth through property investment is not difficult and can be learnt. Once you understand the basic principles, learn the rules, develop a plan, build your “A” team and take action, you’ll be well on your way to starting an investment property porfolio.
I do not like to take big risks or gamble with my money and I don’t think you need to be a huge risk taker to create a property portfolio. My preferred strategy when you start is to buy well located property which provides a good balance between capitail growth and good rental returns and hold for the long term using the incentives of the tax system to help you pay for it.
The right location is critical
I like to tick off the following location rules:
- Good safe family feel to the area
- Serviced by Public transport
- Suburb of a major city
- Near good schools
- Close to large employment zones
- Convienient quality shopping
- Properties in the area worth twice the cost of your proposed property.
- Large percentage of owner occupiers in the area ( above 25%).
Property a longer term investment
Properties are expensive to buy and sell and it can take time to sell them in a slow market therefore you need to be prepared to hold for at least five years and often longer. A great option is to hold an investment property until you retire abd then consider selling. Many people sell prematurely because they get bored or they stop seeing immediate results. If the market flattens out, don’t despair. Just ride with it, because in two or three years’ time, the market will probably have caught up. You need to be patient while the magic of capital growth takes effect.
All the rent you collect is assessable for income tax and all the expenses you incur are tax-deductible. The major expenses are interest on your loan, water and shire rates, the property manager’s fees, insurance, maintenance, and accountants’ fees.
If you buy a newer property, you’re also entitled to claim deductions for non-cash expenses, namely depreciation. Buildings are depreciable over 40 years, so you’re entitled to claim 25 per cent of the cost of the building as a tax deduction every year. You can claim a depreciation allowance on renovations as well.
You’re also allowed to claim deductions for negatively geared properties – where your costs exceed the rental income you receive. For taxation purposes, you can deduct this loss against other income but you still have to contribute cash to your property as long as it is negatively geared. Why would you want to invest and make a loss? Because the capital growth of your property is greater than the cash you’re putting in.
The other side of the coin is positive gearing. The essence of this strategy is that the return you make from the property exceeds the amount you pay in interest and expenses. Positively geared properties are easier to find in regional areas where rental yields are high and capital growth is relatively low.
It is well worth putting together an independent quality team that can assist you in making a great purchase. Stay away from property spruking one stop shops!