The 4 simple rules of investing in property

If you’re in the enviable position of being debt-free and interested in investing, these four rules will help. Read on to find out how you can make your property investment a success.

Rule 1. Successful investing means assessing your risks

Knowing and being able to manage your risks will enable you to make a good decision about where and what to invest in.

For example, many first-time property investors believe that rental income may be sufficient to cover a loan. In fact, this is not always the case. You may find yourself with a vacant or hard-to-fill property for weeks or months at a time. And you may also have maintenance requirements that reduce your returns.

Think about every possible scenario—even the highly unlikely ones! For example, when seeing whether you can make repayments, add an additional two or three per cent onto your interest rates. That way, you will know that you can still make your repayments even if rates increase.

Rule 2. Study the area in which you would like to invest

Investing is not just about ownership; it’s about owning and being able to sell for a profit at a later date.

Study the performance of real estate in your target area(s). Look for average house prices, rates of return, and whether prices have increased or decreased over the past five to ten years.

If you’re unable to access this kind of information, find a local finance broker. Many brokers will have access to the kinds of property reports that investors often do not.

Rule 3. Understand Capital Gains Tax so you aren’t surprised

The information that follows is correct but only from a very high level. It is not to be considered tax advice. For clear, up-to-date, and accurate-to-your-situation information about Capital Gains, you must speak with your accountant.

What follows is a guide only.

Capital Gains Tax is a tax on the profit that you make when you sell an investment. So if you sell your property for $100,000 more in two years’ time, you will owe tax on that balance.

But it also means that if you don’t make a profit—that is, your property doesn’t sell for more than the amount at which you purchased it—then you don’t have to pay Capital Gains Tax. There are some nuances with Capital Gains Tax, too. For example, your tax rate may be reduced if you own it for more than a year before you sell. And you also won’t pay the tax if the property is your main residence, and you’ve never rented it to others.

If this piques your interest, your next step is to call your accountant, because they are your very best resource for implications of Capital Gains Tax and your investments. Your accountant can help you make sure that your investment yields a good return and not just a high tax bill.

Rule 4. Know whether to go to a broker or a bank

While banks have the benefit of amazing advertising, and you may see their deals over and over again, it’s not always wise to go straight to a bank for an investment loan.

Here’s why:

The biggest benefit of going to an accredited broker is that they will not only give you access to much more information, but they will save you an extraordinary amount of time in research.

Brokers know all of the lenders, including those who do not advertise. They are across all of the lenders’ products, and also all of their requirements. They can access profession-related discounts, can translate complex documents into plain English for you, and can do all of this while assessing your needs against what’s available.

When you work with a broker, you get not just the best deal, but someone who can act on your behalf as your advocate. Now that’s something a bank will never do!

Here’s the good news:

The good news is that if you decided to discuss your investing plans with me, I’ll be in it for the long haul.

Not only can I help you work through all of the above, but I will help you to stay on track over time. That means over the life of your loan, too. If your circumstances change, I’ll help you to stay on the front foot with annual loan health checks, to make sure you’re always in the best position.

To book a free consultation with me, pick up the phone and dial 0423 515 251.