By David Shaw, CEO of WSC Group
Certified Practising Accountants and Business Advisors
- Upfront Cash Flow is Paramount
In is predicted that inflation will remain low in the coming decade, this is tipped to keep rental increases to a minimum. With this in mind the upfront cash flow of the property is paramount. Purchase properties with this in mind.
Purchasing properties that have positive cash flow or near positive cashflow from day one will assist you with being able to continue to invest without sacrificing your lifestyle. If this is of interest to you explore dual income properties, even a traditional house with a granny flat as a second source of income can work.
- Improving the yield on your current investments
If you currently own investment properties which are stand alone houses investigating whether it is possible to add a granny flat could significantly improve your cash position. If that is not an option in your area or you own a unit work on paying down some of the debt over time to improve the profit. This strategy is particularly effective if you have paid off all of your “non-deductible” debt.
- Be careful not to overpay on house and land packages or off the plan
When you are buying new property ensure that you get an independent valuation to ensure you are not paying an inflated price. Also look at near new properties in the area. The depreciation benefit of a new property does not decrease significantly in the first few years so if you can get a 2-3 year old property at a discounted price you will still get most of the depreciation benefit at a discounted price. You will also avoid going through a period without rental income during construction. Just watch out for additional stamp duty that you may be liable for and make sure you are aware of any government grants you may receive for buying a newly constructed property.
- Get advice from reputable sources
There are many good buyers’ agents and property investor groups around but there are also plenty that are not so good. Critically review all of the information you are supplied by these people and don’t be afraid to get an independent third party opinion or valuation prior to purchase. A few hundred dollars spent now could save you tens of thousands in the long run and most reputable groups will not be worried about an independent third party opinion.
- Set a plan for the next 10 years
Planning helps you reach your goals. Modelling your next 10 years of investing will help you in figuring out where your assets and cash flow will be which will in turn assist you in making wise investment decisions. If you are going to be retiring in 10 years aim for your properties outside of super to be returning $50k income without tax benefits to subsidise your superannuation pension.
- Regional Areas and Boom Towns
Be careful about investing in regional areas or areas where most people are employed in one sector such as mining without proper research. Many people have invested in mining towns in recent years and many of them have seen the values of their properties decrease and the rent yields slump if there is not enough market depth in the area.
As a general rule we recommend people stay away from investing in commercial property unless they are experienced investors or the property is used in their own business. Commercial property relies heavily on the rental returns and this can be very tumultuous particularly in an economic down turn. During the last few years many commercial property investors have had properties vacant for periods of 12 months or more but they still have to pay the mortgage repayments each month.
Try to limit your purchases to one property for every $30,000 of income. If you have an income of $90,000 as a general rules its best to stick to 3 properties and focus on paying down some of the debt over time.
A recent analysis of property growth since the second world war showed that after taking out the effects of inflation property growth in Australia averaged out to be 4%. In planning for the future factor in only 4% growth to avoid overestimating the value of your properties in your long term plan.
For a free consultation and financial health check please call 1300 365 125 or email email@example.com
The above information is supplied by WSC Group.
Disclaimer: while due care is taken, the viewpoints expressed by sponsors do not necessarily reflect the opinions of Your Investment Property.
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