It’s unlikely most of us will build a billion dollar property portfolio. That doesn’t mean we can’t make sound investments in property to maximise our personal wealth.With a simple easy strategy that you understand, you can make money and reap the rewards.
Let’s start with the major Pro’s & Con’s of investing in property.
- Price doesn’t fluctuate as rapidly as shares or other investments
- You can borrow most of the funds needed to invest
- You are investing in something you can see and touch
- Interest on a loan and most other expenses are offset against your income for tax purposes
- If you cannot find a tenant for a time you will have to cover all costs yourself
- An increase in interest rates will increase your repayments
- There are high entry & exit costs
- If you need access to cash in a hurry, it takes time to turn your property equity into cash
Here are 7 tips when investing in property.
- Have a firm understanding of what you are doing, and what you are trying to achieve by investing in property.
- Keep enough cash set aside in an account at all times as a spare “emergency fund”; my general rule of thumb is 2 months of expenses.
- Plan to keep your property investment for a bare minimum of 5 years, property investment is a long term game and it works best when looking at 10 year timeframes.
- Buy in an area you are familiar with that you know and understand.
- Your property investment shouldn’t cost more than 10% of your gross weekly salary. Ideally an investment would cost you nothing or make money each week.
- Do not overexpose yourself to one market. If you have a home and two investment properties in Alice Springs, it’s time to look at other markets and or other asset classes.
- Pay for a thorough building inspection.
Alice Springs at the moment is a great place for property investment provided you’re in a position to do so. Let’s look at some numbers.
In Alice Springs at the moment, you can comfortably purchase a $500,000 house with a $75,000 deposit. After all costs of buying are taken into account, this will leave you with a loan of around $445,000. At the moment you should be able to get an interest only loan with repayments of around $400 a week. Typically speaking if you buy well you can earn around $600/week in rent from such a property.
While you’re looking real estate agents will be more than happy to discuss this honestly with you so that they can help you manage the property they sell to you. Insurances, rates, agent fees and maintenance will average out to around $150/week, which means you are probably going to pocket close to $50 a week already. The real benefit to owning property comes from capital growth, which is the increase in value of your property over time.
Even if your property only grows at the rate of inflation which is 3% yearly, far below the last 10 years 8.5% yearly growth, your property will be worth $672,000, minus the loan you still have of $445,000 which means that you now have $227,000 worth of equity left over, and the whole time you will have been collecting more and more rent.
All figures have been based from a real scenario, do your own research and chat to a licensed professional prior to making any investment decision.
For some first timers property investment can be a scary prospect. However there many professionals and property enthusiasts in town who are willing to help and share their knowledge so that you can construct a simple plan and make a sound property investment.