Episode 13

When property will work – and when it won’t! Quick tips for property investment

Welcome to Finance and Fury

  • Quick tips to help with making successful investments in property
  • When property will work – and when it won’t!
  • It is two-fold – How well the property works, and then what your own personal situation is like as well

Situations that will work – essentially, doing well in property compared to not doing well

Property

  1. Paying fair value or undervalue for the property – The first step is making sure that you don’t lose from the get go
    • Don’t overpay – New builds can have the FHOG built in
    • Or at least pay the fair value in an area that will grow
    • Remember for a place where land values will go up – The property price will technically go down (remember to watch out for maintenance costs)
  2. Potential zoning and subdivision – future capabilities of the property
    • What is the ability to increase prices?
    • Zoning – growth of land value from high density zoning
    • What are the limits on your ability to change the property?
  3. What is the ability to increase yields?
    • Sub division – 2 incomes for one
    • Duel occupancy

Your situation

  1. Stable cash flows – Don’t get caught out
    • The ability to have long term ownership and maintain payments is important
  2. Can hold for the long term
    • Future plans are important – Property is great for growth – But you have to wait
  3. Limit your outgoing – $50 or $100 p/w – Don’t get in a hole
    • The worst case is to be in a position you are paying more than you earn long term

Situation that won’t work!

The property

  1. The hidden costs – the things that kill the profitability of property
    • Sinking Funds/Body corporates – Seen $6,000 on a place renting for $28,600
  2. Leveraging too high
    1. Price declines can lead to banks increasing your repayments – LVR too high
    2. Interest rate rises – too much debt against value = Bad yields
      • Repayments may be unaffordable if too much debt and rent declines

Your situation

  1. Family/income situation changing
    • Maternity leave or starting a family – Additional costs plus lower incomes
    • Needing to buy a new home for yourself – bank may not lend if existing investment debt
  2. Property is a wealth trap
    • Worst property in best street is a good buy – but not if it is going to cost $300,000 to make it habitable
    • Title searches – Flood zones, major highways (Moving to Brisbane, places in Kenmore)
  3. Negatively geared – with no income to offset or low marginal tax rates
    • MTR of 21% means that 79% is being lost
  4. Loan or ownership structure incorrect
    • Joint owned but one person has no assessable income – bad for deductibility

Thanks for listening!

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