All you beginners have asked for it so here it is in a nutshell – I hope it is of help to you!
BASICS FOR THE BEGINNER PROPERTY INVESTOR
Take a look at a map of the region you are considering, identify the local CBD and draw a circle 15 kms around the central point. Start looking for your property within the circle.
Research, research, research! Review data showing median sale prices and rental yields on comparable properties.
For affordability, stay within the second and third quartile of prices in the suburb for both price and rent.
Check demographics, especially population numbers, growth and density.
Is the property within close proximity to schools, shopping centres, university or business hubs that are well established and likely to appeal to good quality tenants?
Does the area have an established public transport network and is it close to the main arterial road network?
Check the local government website for developments planned for the suburb/region, e.g. high density dwellings.
What is the land size? Is there potential for subdivision (or to increase the size of the existing dwelling) at a later stage to increase the marketability?
The newer the property the better the depreciation benefits for tax minimisation benefits.
Unit – best features: minimum two bedrooms, built in robes, bathroom + ensuite, internal laundry and lockup garage.
House – best features: minimum three bedrooms, built in robes, two bathrooms, lockup garage (parking for two), extra storage, low maintenance fully fenced yard.
Is there a current tenant and if so are they paying market rent?
Invest time to find a quality property manager.
To the more experienced contributors, please feel free to add and comment (as I know some of you will anyway).
Anthony, again a great read. Forget Location, Location, Location – start with Research, Research & more Research
HiI am thinking of investing and not sure which option to go for. I have finance approval for 400K and have cash of 100K. Should I buyOption 1: Buy a unit in the Perth CBD.Option 2: Buy 3km from Perth CBD but not in the CBDOption 3: Buy a house in a surburb. Maybe Rossmoyne area?What are the benefit for buying a unit as to house? andIs it better to buy new unit or older unit?
Many ThanksJohnHi John.
Whether you buy a unit or a House & land depends upon what YOUR financial goals are. I have always believed in house & land as it is the land component that appreciates – everything else depreciates. You ask alot of questions John. <moderator: delete advertising>
Wow… you are amazing Anthony!
Adding so much value to these forums, and so generous with your time and knowledge
How does this work: The newer the property the better the depreciation benefits for tax minimisation benefits?
Hi Larry,
Depreciation works best for high income earners, if you are not in the high tax bracket, this is not a suitable strategy.
Angel
Thanks Angel.
How much does a quality property manager charge for their services? I assume you only need one when you have developed a large portfolio of houses (10+ maybe?).
Larry all depends.
By all means manage your own portfolio and save circa 8% but remember the tenants will be calling you at 8pm on a Sunday night when the stove wont start or the tap is dripping. You will also have to collect the rents advertise for new tenants at the end of each lease etc etc.
I started with a property manager after 1 property and now with a portfolio of 40 i employ 1 full time.
Yes i could do it all myself and save a couple of quid but in the big picture it is a deductible expense and parramount to my business model.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Richard, you nailed it!
Property Management is not worth the hassle of doing it yourself; the costs of using a real estate Property Manager to do it is tax deductible; and if your property is being managed and tenanted well, you never even have to see it – which means diversification into other states for different stamp duty, land tax liabilities, and so.Great read – some good information.
Thanks!
After reading the book "From 0 to 130 properties…" by Steve McKnights, I have difficuty finding any property using the 1 Per Cent Rule. Applying to unit normally get me 6.8%. This is based on 8% ( 7% bank interest + 1) For house is worst. Can anyone enlighten me with regards to rile?
Thanks
Hi Larry,
I agree with Richard and Anthony. I self-managed all IPs, including those inter-state. Sorry, that's a lie, except for the duplex in Millicent.
Angel
once again great info…
larrytheinvestor wrote:How does this work: The newer the property the better the depreciation benefits for tax minimisation benefits?Capital Depreciation is 2.5% of the building cost, per year, over 40 years. Newer homes will have a) more years where you can claim depreciation and b) generally a higher building cost, so the depreciation benefits are generally better for newer properties.
Also, depreciation is a benefit regardless of your tax bracket. The higher your tax rate, the better your depreciation deductions will be, but if you have a $4000 depreciation deduction and you are in the 15% tax bracket, thats a tax saving of $600.Better than nothing.
Great read, thanks for that info – very helpful
Hi Anthony!
regarding what you wrote: "Research, research, research! Review data showing median sale prices and rental yields on comparable properties"
Where can you get those kinds of info Is it through the local council?
thanks!
Maria all that information will be in the back pages of the Australian Property Investor magazine.
Location Location Location is obviously a little too simple. Jumped on my marketers who can sell an area’s upside and lifestyle and future improvement which is an easy sell, what they won’t mention is that by paying an outrageous price for their product you are still going to be fleeced.
Research Research Research always
Comes back to the quality of your research though, one hour from an expert might be worth more than a month from a beginner, also conclusions from research have no promise of being correct. Still it’s all we have!I personally like this one.
Property at the right price. Everything can be factored into an appropriate price and yield I believe.
Hey ALF1, great post extremely useful,
I too agree with investing within a 15 km radius of a city/ major town.
One thing I would add is both new and old properties have their own benefits. For examples As you mentioned new properties have depreciation however as others have mentioned you really need to be in a high tax bracket for this to be a real major factor, newer properties are also likely to use latest technology and theoretically should be structurally sound for 30 years +. Old properties on the other hand have potential to increase equity through renovation and generally have a better chance on picking up something undervalued.
There could be a whole post on the benefits of both but I thought I would outline a couple
Actually one more point I might add: all loans to be IO with a 100% offset account attached to this.
Cheers
Damo
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