In this blog I just wanted to share with you some insights into property investment. I don’t currently hold any investment properties myself, because I prefer investments that are easy to buy and sell (liquid) and investments that I can influence (small business). However, I am definitely not against investing in property, as it can be a great way to build wealth tax effectively if done right.
In today’s blog I’ll share some insights that come from working with clients and friends over the last 3-4 years who have been involved in the property market on a small or large scale. I won’t be referring to anyone’s experience individually (please be rest assured), because each insight/observation on property investment represents multiple people’s experiences.
Hopefully these insights will help you in future.
Flipping properties is not very effective anymore
Every now and then I come across a client that wants to quit work and renovate houses for a living. The plan being to buy a rundown house, renovate the house and sell it for a profit. Unless you’re a builder who can make substantial improvements at a low cost, I don’t find that this is an effective approach anymore. Amateur renovators use to have success with this strategy when housing was cheaper and the entire market was on the rise. With the high costs of buying and selling, you’d probably be better off buying, renovating and then holding as a long term investment. The quick profit doesn’t seem to be there anymore.
Shows like this get people excited about renovation projects.
Be wary of regional and coastal Investment properties
The vast majority of negative experiences I’ve seen have come from clients investing in regional and coastal areas. When the economy starts to slow, regional property can lose value quickly and can be very hard to sell. Here are some of the more extreme examples;
# Investor purchased property in regional QLD mining town for $500,000. Mine ceased operation and property is now worth $77,000 and is difficult to get rented.
# Investor purchased penthouse beach front apartment on the beautiful Fraser Coast for $1.1 million. After the GFC they were struggling to find a buyer at $400,000.
On the flipside, I have had some clients make good money through regional investments. However, this was during the mining boom. It’s a high risk/ high return game.
I will always prefer clients buying property in capital cities. It’s a much safer play.
Town on 1770 QLD. My favourite place in Australia, but I wouldn’t invest there personally.
Consider building an investment property instead of buying an existing one
When you build an investment property there are 2 main benefits;
- You have a chance of getting extra equity in the property. E.g. If you build for $460,000 and properties in the area are worth $500,000 on average, there’s $40,000 straight up. You can’t get this ‘bonus equity’ if you buy an existing property. It can be like buying wholesale vs retail. Please note: I’m not talking about ‘off the plan’ units here, they are a different investment all together.
- You maximise tax benefits, as the property is brand new and you can claim a high amount of depreciation on building, fixtures and fittings.
There are obviously risks that come with building (delays, dodgey builder, budget blowouts), but the most successful property experiences I’ve come across in the last few years involved building/ splitting or developing on a smaller scale (1 or 2 properties at a time).
Buying property in a self-managed super fund
Buying properties in your super fund can be pretty messy, especially if you need a loan to do it. I don’t think it’s a great idea to have all of your future retirement savings in one investment either. Property purchase in superannuation works better if you have enough funds to buy the property outright and it forms part of your investment portfolio, not the whole portfolio.
Overall I think that property can be a great investment, but here’s my general advice;
- Buy for the long term, as entry and exit costs are high.
- Favour capital cities
- Lower your expectations around capital growth
- Make sure the property suits your budget and tax position long term
- Crunch the numbers and do your homework on the property, once you pull the trigger you might be stuck with that investment for a long time. Never rush in.
- Explore the option of building instead of buying existing property
Anyway, hope these insights were helpful. Till next time!-
– Josh D
The information provided on this website is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs. We can assist you in determining the appropriateness of any product or information mentioned on this website.