Property investment can be financially rewarding,
however, before investing you first need have a clear idea of what you want to
achieve.
What’s the best investment choice? Established
property, off-the-plan, newly built, or a property with potential to grow in
value immediately after renovation?
On paper new property often seems to tick more boxes,
but the best answer is "it depends". The right investment choice is
dependent on each individual's investment goals and their stage in life.
There are many articles and books out there that claim
to have “the secrets to successful property investment”. There are no secrets –
you just have to know all the facts, do your due diligence, know your numbers,
and know what your own investment goals are.
Established property can have an edge on capital
growth, but new properties bring the benefits of depreciation, which can help
investors with cash flow.
At present, the government also has incentives in
place to stimulate new housing – so this should also be taken into
consideration.
If cash flow, rather than capital growth is your
priority, then finding a positively geared property is what you’re after. Positively
geared properties are those that produce more investment income (i.e. rent) than
the interest expense (and other deductions). Yes, these are a little harder to
find, but still possible.
A common strategy is to buy something established that
generates a good rental income as well as good capital growth (which you then
tap into to buy a second property). This means you are not under too much
strain to service your loans.
Some experts believe that capital growth should be an investors’
priority. They believe it’s buying the right property at the right location
that's going to make you money, and not the odd dollar that you save in your
income tax.
Only about 15 per cent of investors buy a property to
add value. Renovating suits experienced renovators or investors who are not
desperate for rental income on settlement. Properties can be vacant for months
during renovation and you have got to take that into account.
While renovating a property can increase its capital
growth and rental yield, investors should be aware that the interest payments
made when their property is being renovated are not tax-deductible, because the
property is not available for rent. Instead, that period of interest payments
is added to the property's capital value and is deducted from any capital gain
when the property is sold.
It’s important for all investors to collect all the
facts, and in most cases gain some financial advice before investing in
property. Not doing all the work up front can result in a disappointing
investment.
