The four rules of property investing
WHEN IT COMES TO PROPERTY, THERE ISN’T A LOT CHRIS CHILDS HASN’T TRIED. SHE HAS LITERALLY STEPPED IN EVERY PROPERTY PUDDLE THAT SHE COULD HAVE AND TOOK SEVEN YEARS TO WORK OUT HOW TO DO IT RIGHT. THROUGH UN-PARACHUTED TRIAL AND ERROR, SHE DEVELOPED FOUR CRUCIAL RULES WHEN IT COMES TO BUYING PROPERTY.
1 – Separate your life from your investments
The most important part of successfully investing in property is the organisation of your money. By getting control of your income and personal mortgage, getting debt reduction and money control happening, you can confidently launch into property investment. We teach our clients to separate their personal side from the investment side and build a property investment portfolio.
Many investors fail from the financial pressure when the rental property expenses and income flow in and out of their personal accounts. By managing their investments and not having the holding costs affect their personal income, our clients increase their wealth, without decreasing their lifestyle.
2 – Buy new, not old
There is quite a difference to wealth creation by buying new properties instead of old. Over the years, the drain on cash flow from constant maintenance and repairs of old properties can really hold back your ability to buy more investment properties.
The benefits of buying new property are not only an increased cash flow but also being able to attract better tenants and importantly, the bonus of receiving tax deductions from depreciation. With all of these financial benefits, you are able to go from negatively geared to positively geared much faster.
3 – Interest only loan!
Interest only loans always spark debate in both the home owner and property investment circles. We use interest only loans but pay extra, assisting in massive debt reduction against your home mortgage. Most clients reduce their debts in record amounts – more than $30-$40,000 in the first year.
On the investment side there are big benefits. Interest is tax deductible, principal payments aren’t. It’s easier to manage the investment holding costs if you minimise the cost of payments during the ‘negatively geared’ period. As the property goes up in value, so does the rental income.
The property should go from negatively geared to positively geared and then the extra rent reduces the investment debt. So it is all about the timing and maximising the tax deductions.
4 – Never sell
Over the past 100 years, Australian property has grown in value on average 10% pa. It’s not 10% every year, it works in cycles, usually 2 or 3 years of really good growth, 5 or 6 of flat and a couple of years of negative growth or retraction; meaning that a property can have flat or even negative growth over an 8 year period. The property growth cycle is often debated, but history shows this as fact, though no one has a crystal ball for the future.
There are many benefits of keeping property – you incur buying costs only once, and pay no commissions on selling or capital gains tax. But by selling, taking profit and buying again you maximise the costs and minimise the profits. These costs can equate to $50 or $60,000 even before capital gains tax.
By not selling, this money can be utilised as equity to purchase more property, and your existing property continues to grow as well as the new one.
For all of your business, money and property needs: