Apr 20

Be Careful Of Risky Property Investment Strategies That Can Cost You Your Shirt

Be Careful Of Risky Property Investment Strategies That Can Cost You Your Shirt

We understand any investment has its risks, its not about avoiding risk, its about taking calculated risk. Knowledge is power, if you have the knowledge then you can make a more informed decision. Its best to speak to an experienced investor before making an investment decision.

Investments strategy such as buying house and land package off-the-plan can work very well, provided that you’re aware of the pros and cons.

There are different strategies to consider. You will be able to identify the right strategy for you once you understand the different strategies.

wealth Creation Seminars

Wealth creation seminars strategy is to sell you easy ways to make money and promise big result with a seemingly small investment of time. They are selling you an idea, not a tailored made solution. They work on exaggerating the benefits of their strategies so that you can spend $5,000-$6,000 on their 2-4 days workshop that let you in their BIG secret. But when you try to implement their strategy you have a higher risk of failure as you have limited or no guidance from them. They provide minimal support as most of the contact is done by email or by phone.

Work with an investor that offers you face to face guidance throughout every stage of the investment process to maximise your chance of success.

Commercial Property Investment

Commercial property can offer many benefits such as higher rental yield and outgoings are paid for by the tenant with longer-term tenancies. However, there are also many risks.

Risk in Commercial property

  • Your commercial property can sit vacant for many months, sometimes even 6-7 months until you find a suitable tenant
  • It is harder to find a buyer particular in poor market conditions
  • It may take longer than residential property to sell
  • High risk. Bank only lend up to 60% due to the high risks associated with commercial property. Therefore you’re required to put in 40% deposit. this is a big investment that could be diversified and leverage into residential properties.
  • Sluggish growth. The commercial property may have little land content or locate in a suburb where land is abundant therefore impeding growth.

Investing in commercial property is high risk and required a massive deposit. Again your initial wealthy building strategy is all about minimising risk.

‘Flipping’ Property

Flipping property Is where you buy a property for a good price then sell it within a short period of time for a profit. Or buying a house that needs repair and fixing it up before reselling it for a higher price. However, this is very speculative.

Risk in ‘flipping’ property

  • When you consider high holding and transaction costs such as stamp duty,  loan repayment and selling costs etc. You may find that on a $400,000 property, your transaction could be as high as $30,000 – $40,000.
  • No one has a crystal ball and guess what the future will bring. If you buy and sell quickly, and the market swings against you, it can be very costly.
  • Many people watch television shows that do not represent reality. You buy a property $380,000 spend $30,000 and sell straight away for $450,000, but it doesn’t happen that way.

‘Flipping’ property is very risky and can be very costly. Again your initial wealth building strategy is all about minimising risk.

Property Development

Property developing can be very profitable, it is also very risky and time-consuming.

Property development risk

  • High capital – bank lend about 60-70%. You need to come up with 30-40% deposit plus other costs including stamp duty.
  • Time-consuming and risky. Development can take 1-4 years to complete and require a lot of time and energy.
  • Huge holding cost from start to complete. You’ll need to factor in interest rates, council rates, bank fees and also be careful of construction cost blow out.
  • Lack of knowledge and experience. Property development requires experience and skill when purchasing the site, organising building permits, putting together the right team of professionals, getting approvals, managing your finances and conducting feasibility studies to make sure it’s profitable.
  • Purchasing a wrong development site. Some sites may have flood issues and service issues etc.

This is very risky when you consider the number of developers who go bust. Your initial wealth building strategy is all about minimising risk.

Risks With High Price Established Properties

Buying an established home in Melbourne is out of reach for many investors due to the low rental yield and very high property values. Many investors will make the mistake of investing in 1 or 2 established properties which will over-commit them financially and make it extremely hard for them to invest in the future.

Avoid expensive properties with low yield. An affordable off the plan house and land package in Melbourne growth locations can offer you high growth, high rental return, and high tax benefits which can help you to invest in your next property sooner.

Cash Plow Positive Property

The focus is on rental yields with smaller capital growth. So why is a property positive cash flow? Because slow growth, the rental picks up making it positive cash flow.

Risk associated with cash flow positive property

  • Very slow capital gain. Cash flow positive properties can attract less demand such as those in rural locations or regional areas. Because there is less population growth, the properties grow a lot slower.
  • Higher vacancy rates. If you purchase in an area that is less desirable it can take you months to rent out.

Wealth is created through capital growth. You need capital gain so you can leverage to invest in your next property faster.

Apr 20

6 Smart Finance Tips For Property Investors

6 Smart Finance Tips For Property Investors

Real Estate investing is not just about property – it’s about smart finance.

You don’t need 6+ properties to become financially secure. You just need 4-5 high “performance property”, less is more. Performance property is high growth, high return with huge tax benefits. Capital grow gives you equity so you can buy your next investment sooner. Tax benefits put money back into your pocket, the more the merrier. And good rental return so the bank can lend you more otherwise the banks will stop lending you money because you lack income.

To get ahead with your finance, you need to follow these 6 smart tips.

1. Review your interest rates once a year – if you can reduce some basis points off your loan that means you could save $$$.

2. Don’t overcapitalise – always leave a buffer in place. The more investment properties you have the more money you should have in your buffer. So that you’ll sleep well at night if you lost your job or if your property is vacant.

3. Which one is better for you, interest Only vs Principal and Interest loans? It’s best to select loans based on your individual strategy and circumstances. Interest only loan is more beneficial for investors, you can pay less, claim more tax and save more money. Principal and interest loan is more beneficial for owner-occupiers, as you need to pay off your mortgage asap. One of the better options is to speak to an experienced investor to gain their vast experienced.

4. Don’t put all of your investment properties into one bank. Make sure you diversify out your investment with different banks.

5. Have a plan. Fail to plan is planning to fail.  When you’re investing in a property, plan for your next property and the next one. Each investment property work out what position that will leave you for your next deal.

6. Mortgage insurance is your friend – it may mean you can buy your next property much sooner than waiting to save a much larger deposit or for equity to build up on your existing property. Preferably to use mortgage insurance only on your first or second deal.

Nov 11

The 11 Biggest Mistakes Property Investors Make

The 11 Biggest Mistakes Property Investors Make 

 

  1. Buy a property near your to home. it may be a good investment but it may not be the best investment
  2. buy at auction (paying more than everyone else that are bidding is not smart investing, sometimes you can spend over $20,000 more than what’s its worth)
  3. buy an old property with no potential to add value and doesn’t maximise your tax benefit
  4. Buy base on emotion. When you buy a home to live in you buy with emotion, you must like the kitchen, the bathroom, the bedrooms etc. But when you buy an investment you buy with facts and figures
  5. Don’t take advice from people who haven’t got the result that you want. If they haven’t done it how can they help you?
  6. Don’t overcapitalise (a waste of money that you could use as a buffer for rainy days or could be use for your next deposit)
  7. Sell to realise a profit rather than to refinance, save tax and let it grow to make you more wealth
  8. Pay off debt instead of putting money in the offset account, and you can use this money anytime
  9. Buy in regional areas with very sluggish grow, instead of buying affordable property that gives you high growth and high rental return. Capital growth is the key to wealth creation
  10. Wait for a market to go down (what if it goes up instead?). If you were to wait for a market downturn since 2014 you would be kicking yourself because it’s on a rising market and you may be missing out on $100,000, $200,000+ in capital growth. The key is to get in now if you can afford.
  11. Wait for the deal of a century (you may pass up many other great deals while you wait, and you miss out on many years of capital growth while you wait. Don’t wait to get in, but get in and wait.

Oct 29

The benefits of investing in property

 

Number 1: You have capital growth 

Number 2: You have tax advantages

You can reduce your tax to legally zero. 

Number 3: You have the depreciation

Which is another form of tax advantages.

Number 4: You have income coming in every month

 

Our strategy is to invest in high capital growth property with low holding cost from as little as $13 a week. Over time the property generates you an income.

Capital growth property is very important, with the increase equity, this can help you to invest in your next property sooner.

 

So you have money coming in, Government is giving you all these bonuses and on top of that the bank will lend you money for property. 

Imagine going to your bank manager, and you say to your bank I believe gold, antiques and paintings are good investment, can you please lend me the money so i may invest in these things.

What do you think your bank manager will say to you?

He will laugh at you. However the bank will lend you money for property, but they won’t lend you money for antiques or paintings, simply they are too risky. 

Firstly, the bank will lend you the majority of money, every dollar you put in the bank lends you nine dollars. This is call leverage. Secondly, real estate is the safest investment. If it wasn’t safe the bank won’t lend you money.

 

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Apr 27

Questions & Answers on Real Estate Investment

 

Risk # 1: What if i can’t find a tenant?

Look at the facts…

The vacancy rate in Melbourne is about 3%, meaning out of 100 properties, only 3 are vacant, 97 are rented out. 3% vacancy rate is an equilibrium market. 

 

The solution:

  • Select location with high rental demand and shortage of rental properties.
  • Reduce the rent by $5-$10 to attract tenants to choose your property over others.

 

Risk # 2: What if i have bad tenants?

And what if the tenants don’t pay rent or damage my property? 

Get landlord insurance protection.
Buy in good location, this minimises the risk of bad tenants.
And also the property manager would screen the applicants first before they accepted the tenants.

 

For property damage (fire, rain, etc) get building insurance.

  

Risk #3:  What if i lose my job?

If you lost your job, you will find another job. Make sure you have a financial buffer, say $10,000-$15,000, this will covers you in rainy days. 

 

The solution:

  • Obtain comprehensive insurance;  income protection insurance.

 

Risk #4: What if the interest rates rise?

Investing in property is a long term strategy, you should hold on to the property for at least 10 years to have the biggest rewards. 

During this 10 years interest rate goes up and down. When interest rate rise, this doesn’t effect the investor as much as an owner occupier. As an investor you get more tax back to cover the interest.

 

The solution:

  • Choose an interest rate only loan for lower repayment.
  • You may consider to fix the interest rate, so you know the repayment over the next couple of years. 

 

Risk #5: What if the Market Collapses

Understand property cycles, historically well selected residential property double every 10 years. During this 10 years cycle, it goes up, it stabilise, it may go down a bit, then it goes up.
Residential property has only corrected itself.

The key is to BUY, HOLD AND NEVER SELL… Investment is a long term strategy.

 

RIsk #6: The risk of retiring broke

Only about 7% of Australians own residential investment property, most people don’t invest because they fear of debt or they procrastinate. 

The biggest fear of all is retiring broke. The statistics shown that out of a one hundred Australian, after working for 40 years, 95% end up broke and 5% are financially free. So when you reach retirement age, will you be financially free or end up on the pension?

The biggest risk of all is not doing anything.

To minimise risk is to have the correct knowledge and the right information from successful investor who have actually done it.

 

Apr 24

The 7 Golden Rules to Your Investment Success

 

Golden rule #1: Money that you invest must be absolutely safe

Residential property in Australia held over the long term is one of the safest investment.

Bank lend up to 90% on residential property because they know that property is very safe for them to lend money.

 

Golden rule #2: Invest in assets that appreciate in value

Residential property in Australia is one of the only investments where consistent capital growth is generated over time. Over a 10 years period, historically property prices have risen from 5%-10% per annum.

For example … what was your home worth 8 years ago compared to its current value?

 

Golden rule #3: Insured your assets

Get adequate property insurance; including landlord protection and building insurance.

Also have sufficient personal protection insurances.

  

Golden rule #4: Use Leverage to achieve highest possible returns on investment

Property always outperforms all other investment classes, because of leverage.

For each dollar you invest, the bank lends you nine dollars. Hence the return on your money is ten dollars. Using leverage provides you with greater return on the money that you actually invest. Invest in the minimum amount as possible to maximise the returns on your money.

  

Golden rule #5: Maximise tax advantages

Residential property has the most attractive tax advantages compared to any other investment. With negative gearing benefits, you can claim on building and fixtures and fittings, borrowing costs and other costs associated with the investment property including property management fees and insurances.

The combined tax benefits and rental income on a residential investment property can offset all holding costs, and may even provide a positive cash flow. Eliminating all your property expenses.

 

Golden rule #6: Invest your money in income producing assets

Residential property on average gives a rental return of 4.5-5% per annum and outperform inflation on average of 2.5%.

 

Golden rule #7: Proven investment system 

You must have a proven investment system and that implements all the investment golden rules, requiring minimal involvement.

Following the investment system will avoid headache and potential risks, plus will maximise the upside rewards.

 

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Mar 08

Helpful Property Investment Tips

 

  • Invest in a brand new property to save maximum tax.
  • Depend on your situation, buy off the plan to save maximum stamp duty.
  • Buy in an area with low vacancy rate, easier to rent out.
  • Invest in property where the holding cost is low, in most scenario between $10-$50 a week.
  • Don’t buy a property that is very expensive, as the rent won’t cover the interest repayment.
  • Have the correct insurance in place; landlord protection and building insurance.
  • Buy in an area with good potential for capital growth, for example location with big infrastructure development, high population growth suburb, or a recognised developing area.
  • Don’t manage the property yourself, appoint an experienced property manager.
  • Get a depreciation schedule for your property, to claim tax deductions.
  • Seek advice from professional people, deal with those that are successful property investors.
  • Refinance your property to continue to build your portfolio.
  • Don’t follow the majority, follow the minority.
  • Have the right finance structure in place that enable you to build a property portfolio.
  • Have a long term mindset, and hold on to your property for as long as you can.
    The longer you hold onto it, the more wealth you build and the more income you’re going to get.
  • Stay away from negative people as they will steal your dreams.
  • Avoid the opinions of friends or other people, unless they are successful investors.
  • Depend on your situation, you can claim around $4,000-$7,000 on tax on a brand new property.
  • Diversify your portfolio with apartments, townhouses and houses, as each has its own advantages.
  • Investing in property is a good debt, as it goes up in value and can also give you an income, accumulate good debt and avoid bad debt.
  • Repeat your success to accumulate at least 4 investment properties over a period of time. 1, 2 or 3 properties are not going to be enough to give you the lifestyle that you want.

 

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Feb 13

Pros And Cons of Buying Off The Plan Property in Melbourne

 

Buying off the plan for example an apartment can be risky if you don’t know what you’re doing, especially for first time or non experienced investor. There are some risks involve when buying off the plan, for example:

 

  • The quality of the finished product can be a lower quality
  • Or the project may take longer to complete than expected
  • What happen to your 10% deposit?
  • And there are some other factors to consider too

 

You have to look at your goals, and your financial situation to see if whether off the plan is suitable for you or an established property. If off the plan is a suitable strategy for you, buying off the plan can have massive advantages.

 

How does off the plan work?

 

When you buy off the plan property for example an apartment. You sign the contract of sale and you pay the 10% deposit of the contract price, you pay nothing until settlement. Depend on the project you buy, it could take 6 months, 1 year, 1.5 years or 2 years to build. Make sure you check your finance first to see if you are qualify before you buy any property, and make sure the completion time frame is suitable for your investment purpose.

 

The benefits of buying off the plan 

 

  • Investors buy at today price and the property may increase in 1.5 – 2 years later, like any properties it depend on market condition.
  • Allow you to get your foot in the door with minimal cost.
  • You can save massive stamp duty. For example a $400,000 property. Buying off the plan the stamp duty is around $2,000-$3,000, an established property costs you around $20,000 stamp duty. 
  • Brand new properties have 7 years building warranty as compare to something old.
  • You can claim maximum depreciation on a new property, allowing you to claim maximum tax for your investment.

 

Is your 10% initial holding deposit safe?

 

There are two common ways for you to pay the 10% deposit for the purchase of a property. 

The first way, is by bank guarantee. You go to your bank and you tell your bank you want to get a bank guarantee for the purchase of the property. You give the bank 10% deposit, the bank put this money in a term deposit in your name, and the bank issues you a bank guarantee, you provide the bank guarantee to the vendor. You earn interest in you term deposit, and the money is release at settlement.

The second way, is by bank cheque, the bank cheque is made payable to the vendor solicitor and not the vendor. The vendor doesn’t have access to your money. The money is release to the vendor at settlement. Hence your money is safe.

 

Is buying off the plan safe?

 

Everything we do in life there is an element of risk, like driving a car. We can minimise the risks if we buy only from reputable developer.

Reputable developer delivers quality product, complete project in a timely manner, and they want to leave a good name and reputation, they are here for the long term. 

 

In recent years apartment projects have been very popular, well perceived by owner occupiers and property investors especially within 10km radius of the Melbourne CBD. And the trend of the future is apartment living due to the following reasons:

 

  • Government support developments close to CBD.
  • Apartments are more affordable than houses.
  • People want to be close to Melbourne CBD, employment, public transport, hospitals and all amenities and facilities.

 

If you are planning to invest in an apartment, select a great location with potential for capital growth and high yield. Only buy good project from reputable developer. 

If you need some advice as to what is best for you, feel free to contact us, we are here to help you.

 

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