30/01/2015

Property Investment – “You make your money when you buy”

“You make your money when you buy”. How do you do this?

Research and know your market. Identify suburbs that will have greater capital growth than other areas. The area could be ripe for redevelopment or its demographics might be changing. Learn everything you can about your chosen suburb. With good local knowledge, you will know a good deal when you see one. Be prepared to negotiate a good price and to walk away if you don’t get one.

Look for properties with both good rental income and potential for above average capital growth. The rent needs to cover outgoings such as mortgage interest, insurance, maintenance, rates and property management fees. If you buy well, the rent might also cover all or part of the loan principal repayments. If there will be a cash shortfall, how will you cover it? Is there an opportunity to tidy up the property and increase rents?

Ask yourself “What If” questions. For example, what if interest rates increase significantly? What if the demand for rental property falls and I can’t find tenants?

Think about the property from a selling perspective. What will attract buyer interest when it comes time to sell? Does the house have sunny living areas? Is it close to schools, shops and motorways? Is it within walking distance of public transport, parks and reserves? The same qualities that attract buyers will also attract tenants.

Try to avoid auctions because they are unconditional and you have to spend money on due diligence in advance. The best way to buy is by private treaty where you negotiate a price and terms with the seller through a process of offer and counter offer. The terms should include due diligence conditions such as passing building inspection and chemical residue tests. You should be working with your lawyer during this process.

If you can’t avoid an auction, consider ways to reduce the cost of due diligence. Consider obtaining an E-Valuer automated valuation instead of a full valuation. And a verbal building inspection report instead of a written one.

Tax structure

The correct ownership and financial structure can make a big difference to the amount of income tax you pay each year and on the sale of the property. We recommend that you consult with us while you are looking for a property and certainly before you arrange finance and settle the purchase. It will be too late afterwards.

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