The market for investment property in Perth has become much more active as of late due to the lowering interest rates improving the returns available from investment properties. While this has been great for Perth and other parts of Australia, it has also resulted in a lot of small investors who don’t have any idea of what they are doing trying to compete with those who are more savvy about the process.
We recommend that anyone who is considering property investment hire a buyer’s agent and a property manager to help them navigate the Perth marketplace. However, we would like to offer a few basics for every investor should know.
What Equity Means to You as a Property Investor
Equity is what most investors use to purchase their first investment property in Perth. It is the difference between the value of your home and the amount of money you owe. One great rule of thumb is to never risk all of the equity in your residence without leaving yourself a buffer in case of emergencies.
Learn to Appreciate Depreciation
Depreciation is the vehicle by which investors save a lot of money on taxes. We recommend hiring a professional quantity surveyor and having him provide you with a depreciation schedule. This will help maximise tax deductions.
Negative Gearing versus Positive Cash Flow
Negative gearing means that you are partially paying for your property out of your own pocket because it doesn’t produce enough income to cover expenses such as mortgage, maintenance and property management. Positive cash flow means that the property is providing more than enough income to cover expenses.
Negative gearing carries tax benefits but should transition into positive cash flow as rents increase. Remember that just because you are getting a tax benefit with negative gearing, you are still losing money on the property and it’s not a good idea to count on capital gains to offset this.
Research for Investment Property
The more you know about the Perth market already, the easier this is. The ideal situation is to find a home that is slightly underpriced in an area poised for future growth. Amenities such as schools, shopping malls, medical facilities and transport should be taken into consideration. While many like to choose one suburb for multiple properties, we recommend sticking to a single city but spreading out your choice of suburbs. Many investors who don’t mind being more active with their investing combine all these factors with a strategy to add value to the property. That way they create value and have the best possible chance of the market increasing in value.
The Investor’s Edge
We hope these tips are helpful, but we don’t recommend “going it alone.” Hire professionals who know the market and have already done the research. Call 1300 472 427 for more information.
