Learn About Property Investment

Property investment for beginners
By Jane Burton Taylor, The Sydney Morning Herald

Buying property as an investment can have big benefits in building long-term wealth, but it also has some major pitfalls. The first rule is to buy an investment property in a growth area, says Debbie Donnelley of Di Jones Real Estate in Sydney’s eastern suburbs. “You need to get capital growth as well as negative gearing.”

Negative gearing is basically when you borrow a large percentage of the money for a property investment, and there is a shortfall between incoming rent and outgoing repayments. This shortfall in interest repayments is tax deductible.

It is important to make sure the property can be sold quickly in case people find the mortgages too much, says Donnelley. For example an apartment with a balcony, internal laundry and garage.

“Don’t buy a property on a busy road or without a carpark because it is cheaper,” she advises. “And don’t buy something off the plan by a developer you don’t know. Buy property near parks and beaches.”

An appealing property in a sought-after area will also ensure strong rental returns as well as maximising the likelihood of full time tenancy.

Sydney real estate agent John McGrath advises to do your homework about a property’s value. “If you overpay, it may take several years to make that up.”

McGrath says property is a good investment because it is easier to select and manage than other types of investment. He says, for the novice investor, property it is a safer alternative than equity or shares.

One third of property is owned by investors, two thirds owner-occupied, he explains. So in a down turning market, the majority of property owners don’t sell their properties as they might shares.

Returns also tend to be more constant in property versus shares. “Rent rarely goes down, so it provides a dependable ongoing income stream.”

He gives a general caution, “Try to avoid disposing of an investment property quickly.”

Liquidity of investment is definitely higher in the stock market. Acquisition and disposal costs in property are high.

Another important guideline is to only spend as much as you can afford and have enough money to cover any the shortfall between rental income and outgoings.

“Seek a financial planner or accountant’s advice about how much the gap might be and what you can afford to cover,” says Donnelley.

McGrath advises a buffer account to cover downtimes in terms of tenant vacancy and unexpected maintenance work.

McGrath also warns against getting caught in a position where interest rates going up and you can’t afford to keep repayments up under those conditions. “It is important to keep in touch with the market and what is happening with interest rates.”

Posted: Sunday, July 3rd, 2005 Under: Property. | Home |

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