Property investing can be complicated, but the basic skills to help you create wealth using property investment are well within the grasp of most Australians. You really only need to know the rules, and have a solid plan of action. After that, it’s simply a matter of doing it. As long as property investors rely on solid management instead of luck, they can create significant wealth through property investment.
The key for most property investors is to keep it simple. We are conservative investors here, and try to eliminate as much risk as possible from any purchase. From a platform of low risk, it is still possible to maximise capital growth. There is a simple and effective way to do this: buy good properties in good locations and hold on to them long enough to let appreciation and tax advantages create wealth.
Location, Location, Location
Location is still the number one determining factor in whether or not a property will deliver a good ROI. Location affects demand, and demand affects value; this can work in a positive way or a negative one. We recommend staying on the positive side. We like waterfront properties and those located close to the CBD. These kinds of properties are always in high demand.
Time is On Your Side
The longer you hold on to investment property, the more money it makes for you. It takes a minimum of five years to see a property’s true potential for creating wealth. It takes that long to recoup your initial investment. A lot of people sell if the market fluctuates downward, but that is the worst possible time to sell.
Has anyone ever created wealth by buying high and selling low? I think we all know the answer to that one. Consequently, it is extremely important to hold on to your property until the market goes back up. Historically, real estate has always gone back up after even the steepest drop. All you have to do is be patient and allow time to make you money.
Take Advantage of Every Tax Break
The tax system is heavily slanted in favour of property investors. While your rent is subject to income tax, you can deduct all of your expenses, including property management, maintenance, insurance, accounting fees, advertising, and the interest on your loan. If you buy a new home, you can take “depreciation” to the tune of 2.5% of the building’s cost every year. If you renovate, you can also take depreciation on renovated areas.
While we like positive cash flow, properties that are “negative geared,” or have more costs than income, produce a tax deduction. While you are operating at a loss, that loss is more than offset by capital gains as the property appreciates in value.
The other side of the coin is positive gearing, which means that you are generating monthly income from your property. This is always a great situation, and is more likely in regional areas, due to a much better ratio of rent to price.
Since tax-efficiency is complicated, we always recommend consulting a tax advisor on the ramifications of any investments before you make them.
