- 7 Jul, 2017

Top 5 Property Investment Tips

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Buying an investment property is a bold step to securing your future. But with your first purchase also comes risk. So, to avoid creating too many risks, let’s look at how you can travel on the safest path.

Using Home Equity

Many property investors use the equity stored in their home to buy their first investment property. Over time, this makes building a property portfolio easier.

However, it’s important you understand how equity works, before using this strategy. Plus, it’s vital to not over-extend yourself. Otherwise, you’ll increase your financial risk and leave yourself vulnerable.

What’s the best strategy?

  • Always give yourself a financial buffer.
  • Have at least 6 to 12-months of mortgage repayments
  • Cover home and investment costs always.
  • Financial backing negates risk.

How much equity should I use?

  • Access no more than 50% of your home equity as security.
  • Use the least amount of equity as possible.
  • Own more of your equity property than you owe.

Hire a Quantity Surveyor

When buying an investment property, all fittings and fixtures in the property are depreciable. These items include carpets, lights, and the hot water service, as well as tiles, the dishwasher and any other item that sells with the property. Depending on the age of these items, and their predicted lifespan, they can reduce your tax.

What’s the best strategy?

  • Hire a licensed quantity surveyor.
  • Ask for a quote for an investment property depreciation schedule.
  • Costs range from $800 to $1200 per schedule.
  • Have a schedule completed before renting the property.

How does a quantity surveyor help?

  • The Australian Taxation Office recognise a quantity surveyor.
  • Surveyors estimate construction and replacement costs.
  • Deductions average between $5,000 to $10,000 per property in the first year.
  • No matter the age of the property, they find deductions.
  • Your accountant uses your depreciation schedule to reduce the tax you pay.

Understanding Gearing

Negative gearing means you contribute more financially per year than the income received from the investment property. Having a positive cash flow, however, occurs when you make more money from the property than it costs.

What’s the best strategy?

  • If you want to reduce tax, then negative gear.
  • Those looking to increase income should create a positive cash flow.
  • Always work out property costs before buying.

If I don’t understand gearing what can I do?

  • Ask your accountant.
  • Contact your mortgage broker.
  • Discuss options with your financial planner.

Researching the Market

Before you start investing in property, understand the basics. This approach means conducting independent research using reputable resources.

What’s the best strategy?

  • Buy in sought after locations.
  • Think like a tenant when buying.
  • Set yourself a realistic budget.
  • Consider supply and demand.

How do I conduct research?

  • Make a list of suburbs and dwelling types that interest you.
  • Visit reputable real estate sites – Realestate.com, CoreLogic and Residex.
  • Look at property sales and rental data.
  • Read economic facts for areas of interest.

Buying Right

There are many types of property that you can buy. Unit, apartments, houses, duplexes and semi-detached or attached property are popular. Therefore, to buy right, you need to think long-term and stick to a strategy.

What’s the best strategy?

  • Consider your investment goals.
  • Know your borrowing power.
  • Set yourself a budget.
  • Maximise cash flow.
  • Aim to reduce risk.

Where do I start?

  • Research the market.
  • Give yourself an investment goal – self-funded retirement etc.
  • Know how you’ll achieve your goal – buy a property once every 18-months.
  • Define your property types and locations.
  • Discuss your options with a mortgage broker.

Are you looking to buy your first investment property? Then contact eChoice, our brokers have access to 100’s of products, so we’ll find you the right mortgage.


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