Property Investment – What, When, Why and How?
By Simon Rodger
We continue to get frustrated seeing and hearing all the public commentary and marketing from property investment ‘gurus’. Although many are no doubt very intelligent business people, the one thing that stands out is that they all seem to preach that direct residential property is the right investment for everyone, all the time. This is regardless of financial position, age and stage of life, tax position, attitude to risk and existence of other wealth creation strategies.
Before diving head first into property, we suggest being clear with the following questions:
Investing as a result of a chat with friends, or in response to the bombardment of property spruikers on the radio and social media is not the right reason! Property as part of a longer term, diversified wealth creation, tax minimisation and investment strategy is a much better reason, as is planning for retirement, downsizing or accommodation for the kids who are finding it much harder to get into the property market these days. It’s also necessary to understand the need for ‘yield’ versus the desire for capital growth. Of course we all want both!
House, townhouse or apartment? New or old? Off the plan or already built?
We may all have our individual preferences, however the key is to understanding the risks and benefits of each, as well as the demographic trends and government policies that dictate how future generations and populations will be living. Also don’t ignore the benefits of tax depreciation! The other massive and obvious consideration is what can one afford? A good financial strategy is key here, together with strong tax and loan structuring advice.
The number of so called ‘hot spots’ drives us crazy. Surely they can’t all be hot. Lifestyle trends, population trends, infrastructure and education investments can all combine to be good indicators. Whether you would personally live there or not is less of a consideration, although it’s generally better to invest in a location where there are good owner/occupier numbers and low rental vacancies. Also the specific location in the suburb can be more valuable information than the general suburb itself.
The million dollar question. Property prices do move in cycles, and each capital city can be at different stages of the cycle for various reasons. Many investors quite rightly look at what’s happening in the market to help guide when to get in, but many unfortunately forget to look at their own personal circumstances to help determine when the timing is right for them! This again highlights the need for a decent plan and a good understanding of what you want to achieve overall – not just for one specific piece of real estate.
Get some advice! Develop a plan and write it down! Consider the structure and entity that will be borrowing money, understand borrowing constraints, understand your tax position, retirement plans, family situation – the list goes on! It is not necessarily complicated, but it is very, very important to do it right and to partner up with someone who has sufficient expertise (not just ‘experience’) in property, financial planning, tax, finance broking and insurance.