A five-step guide to successful property investment
Unprecedented growth in house prices across the country is luring investors into the market - here are five top tips for those looking to make a successful investment.
The Australian property market is growing at an unprecedented rate, with the latest data from CoreLogic showing national home values rising another 1.92 per cent in June.
Freedom Property Investors’ Scott Kuru and Lianna Pan share their top tips for Australians looking to capitalise.
1. Invest using someone else’s money
The beauty of investing in property is you have leverage at your disposal.
Leverage is the principle by which you use debt, rather than fresh equity, to purchase an asset; in other words, the banks have you covered.
In Australian residential property, you can borrow 90 per cent of the value of your investment, and for those with a foothold in the market, the equity from another property can cover the rest.
Take the second property Scott purchased as an example. He had a $360,000 loan against his first property, and after revaluing it at $500,000, extended his loan to $450,000 (remembering the banks will loan you 90 per cent of the value of your property).
Applying this same principle to the purchase of his second property - valued at $400,000 - Scott borrowed $360,000 (90 per cent). Instead of investing his own money to cover the remaining $40,000, he tapped into the equity from his first property ($90,000 after it was revalued).
2. Never pay full price
In hot markets like the one we find ourselves in now, it seems near-impossible to buy under market value. In reality, many developers will offer a massive saving in exchange for an early sale.
Freedom Property Investors is a community of investors. What this means is we can apply our extensive research into the market to approach developers directly and negotiate the best deals - including exclusively negotiated add-ons, appliance upgrades, and dibs on the properties with the best views or layouts, at no extra cost.
3. Invest in suburbs where demand is high and supply is limited
To achieve financial freedom, it isn’t enough to simply invest in property. You must invest in properties with positive cashflow, in areas where demand is high and supply is limited. Is population growth high? Employment strong? The number of new homes, low?
Anything else, and what you are left with is an enormous loan and a rent that does not cover it; so long as new properties are being built, prices will stagnate.
Freedom Property Investors spend tens of thousands of dollars a year on a system that tells us about the developments being planned, approved and built. For those who are not yet members, we suggest you start with a Google Search: “Developments in suburb.”
Council zoning maps are also useful. You should be cautious of investing in suburbs that have been zoned for high-density buildings, as this is a sign the supply will soon match the demand, slowing capital growth for years.
Another method for securing positive cashflow early is to negotiate guaranteed rent; rent that is contractually guaranteed, even in the event your property is unoccupied. This is a win-win for investors, as property managers who agree to this, do so because they are confident the demand for the property is high.
4. Legally reduce the amount of tax you pay
The strength of a country’s economy is in part reliant on the strength of its property market. For this reason, there are several tax deductions available to investors. These include tax breaks and depreciation.
As investment properties are income-producing assets, you can claim back expenses like land tax, pest control, and interest. Not only that, through depreciation, there are hundreds of items, and thousands of dollars, you can claim back each year - for new properties, this includes the amount it costs to build!
5. Find a trusted mentor with proven results
If you have a goal, the best step you can take towards achieving that goal is to find someone who has already, and who is willing and motivated to help you do the same. This applies to any goal in life.
Lianna, whose portfolio spans 27 properties, was Scott’s first mentor when he began investing in property. After just eight years, Scott now owns 17 properties in his own right, and it is Lianna’s expert insight into the property market that has helped to deliver similar results to our 3,500 members.