Thinking about your first investment property?

It is more affordable and easier than you think.

A few financial planners have told my husband and I, that as a couple we need 1 million in cash to retire on now. If you are looking to retire in the next 20 years, as we are you can double that number. If you look at your asset’s, will you have you have enough to do this? The great Ausutralian dream of homeownership is alive and kicking and we want to invite you to think about how you can make sure you retire not just comfortably but in style.

Our parents generation thought they could just purchase one investment property and that would be their retirement plan. This is not necessarily going to work for our generation. It’s good advice to look at different asset classes to spread the risk, but for me I invest in property. I have done so for 17 years and it’s been good to me and my family. Being in the industry this strategy made sense for me but it’s really not as difficult as you may think, and with interest rates at an all time low, now is a great time to take that first step onto the property investment ladder.

Top 5 tips:

  1. Know how much you can afford/feel comfortable to invest, and stick to it
  2. Do your research on the area you are buying in – look for regular, reliable public transport and infrastructure like shopping centres, schools and restaurants
  3. Know your numbers – be clear on all holding costs and what rent you will achieve
  4. Do not compromise on the quality of the property manager you choose to help get the most out of your asset
  5. Ensure you maintain your asset, this attracts a better type of tenant and keeps the capital growth trending up

If you are concerned you don’t have any spare cash, but you are interested in growing a property portfolio then don’t despair as there are still options. You could always pool your cash with like minded friends or family, co-vesting is another strategy where you contribute funds with a group of other people and a company identifies the property, manages the purchases and dallocates the share holdings of each investor based on how much they invest into each purchase.

If you have owned your own home for some time, chances are you have built up equity in the property by either a) paying down your existing loan and/or b) the value of the property has increased over time. Most lenders will lend up to 80% of the value of your property, without charging any extras. For example, if your property is valued at $1,000,000, and your current loan is $700,000, you can potentially unlock $100,000 worth of equity to use as a deposit for the purchase of an investment property.

Here is an example of a house we have on the market at the moment for sale in South East Queensland.

Purchase Price: $325,000 (solid brick, 4 bath, 2 bath, 2 car)

Stamp Duty: $9,800

Equity Release Loan: $74,800 (being 20% deposit + Stamp Duty)

New Loan: $260,000 (being 80% of purchase)

Interest Charged @ 4.00% = $13,392 p.a (Fully tax deductible)

Rental Income = $18,200 p.a ($350 per week)

Holding costs

$13,392 interest

$1,000 management fees

$1,500 water and council rates

= $15,892 costs

$18,200 (rental income) – $15,892 (holding costs) = $2,308 profit in year one.

As you pay down the interest each year and the capital growth of the property goes up your yield will get higher and the equity in the property will grow. Once you have your first investment property and can see the equity growing you can start to leverage that equity to purchase additional properties. 

It’s never too late to start investing in property and your financial future.

 


In a real estate career spanning more than 16 years, Penelope Valentine has held senior, national management roles with McGrath, LJ Hooker and co-founded industry start-ups including Rent360. She also regularly contributes to Real Estate Business, Elite Agent Magazine and speaks at real estate industry events. As co-founder of Sydney-based property management agency Property Alchemy – she works in close consultation with her investors, engaging in careful and considered tenancy selection and management. Results are amplified by identifying the industry’s leading technology to provide timely and detailed reporting and market intelligence to her clients to ensure they are always informed.

Property Alchemy is the genesis of this experience and is now, one of Australia’s most comprehensive and professional, yet highly-personal and approachable property management agencies.

 

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