There are many different strategies for property investment. These include buying and holding, buying new versus old, trading, wraps, cash deposits and borrowing 110%. Here is the simple process that works for my clients.
1. Source new house and land packages in growing areas, usually in New South Wales. Investing in these areas will be more affordable and provide reasonable consistent capital growth whilst keeping your weekly investment outlay to a minimum. It is true you can achieve higher capital growth in inner cities but it needs to be weighed against the increased initial capital outlay and weekly cash expenses. Often you can afford to purchase more properties in new growing suburbs.
2. Secure a loan suitable for construction and draw downs. The first draw down also covers your interest payments. Interest is deductible when you are building your investment. The loan should have an interest only term, usually for up to 5 years. This will enable you to make the most of your tax benefits during the first few expensive years of the loan.
3. Purchase land direct from council, or the first developer of the project. This saves thousands of dollars of stamp duty as you only pay stamp duty on the value of the land and cuts out any of your profit going to the middle man. By the time the land is ready to build on, and after the building has been completed, the value of the land generally increases. As it is the land that always grows in value I rarely advise clients to buy units.
4. Arrange a suitable builder to build a quality free standing 4 bedroom home. I have always had more capital growth on free standing homes and duplexes rather than units. Usually there is already an increase in the home value after the property is completed. Make sure there are sufficient inclusions in the home that will quickly attract tenants.
5. One month prior to the completion instruct a property manager to secure a tenant ready to move in.
6. Make sure you have all the necessary insurances including landlord insurance.
7. Arrange for a depreciation schedule from a quantity surveyor to achieve the maximum depreciation benefits from a new property.
8. Prepare a PAYG tax variation lodgement so you can claim tax benefits on each pay period and help fund your weekly cash expenses.
9. When practical, repeat this process until you have the desired amount of property to help fund your retirement. Provided you can maintain your investments for around 10 years you will achieve good capital growth,
10. It is recommended to sell only some investments at retirement to pay out the mortgages on the remaining properties. You can then live off the rental income from these properties.
Your seven steps to a better future
1. Let's meet for 30 to 60 minutes to discuss:
- Your hopes for retirement. Together we will calculate the income that is required to live on in retirement. Then we determine the shortfall between your superannuation and required income. The shortfall is the target we will work out your strategy on.
- Your current financial circumstances to see if restructuring is required, determine what your borrowing capacity will be, and the amount that you could invest comfortably on a weekly basis.
2. I prepare an easy to read five to seven page proposal with a strategy outlining how to achieve your targeted retirement income. It will show how you can use your home's equity to purchase residential investment properties, and how many properties you will need to fund your retirement.
3. Arrange pre approved finance so that you can purchase investments with confidence. You can do this on your own or, as an Aussie Mortgage Market representative, I can research the best options for you at no cost.
4. We will target an investment area and help purchase a property.
5. I can coordinate with builders, banks and solicitors. Depreciation schedules are prepared and I will assist in preparing tax variation agreements.
6. Prior to the property being completed, I can arrange for a tenant to be secured ready to move into the property.
7. By keeping track of increases in the equity of both your own property and your investment properties, you can continue buying additional properties until you reach your retirement goals.
