If you think you can’t create wealth through property, think again!
(General information only)
Separate your life from your property investment
The most important part of being able to successfully invest 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 how to separate their personal side from the investment side and build a property investment portfolio. The reason many investors fail is the financial pressure that occurs when the rental property expenses and income flow in and out of their personal accounts. This can be overcome by having an investment pot or buffer fund. By managing their investments and not having the holding costs affect their personal income, our clients increase their wealth, without decreasing their lifestyle.
Buy new not old investment property
It took me years to realise how much difference it made to our 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 really held back our ability to buy more property investments. However by buying new property, the benefits were not only increased cash flow (from less costs), but also being able to attract better tenants. And importantly, the bonus of receiving tax deductions from depreciation. With all of these financial benefits, we were able to go from negatively geared to positively geared much faster, thus enabling us the freedom to grow more quickly.
Interest only loans vs principle and interest
An Interest only loan has always sparked debate in both the home owner and property investment circles. Both are good. In both cases the bank only takes the interest – the principle payment reduces the loan amount and creates equity. It is more about managing the holding costs in the first few years. Interest is tax deductible, principal payments aren’t. It’s easier to manage the holding costs of the investments if you minimize 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. The bank will change to principle and interest after a few years and you will start to reduce the debt.
Never, never, never sell your property
Over the past 100 years, Australian property has typically 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. Regardless of the growth debate, 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 utilized as equity to purchase more property investment, and your existing property continues to grow as well as the new one.