Foreign buyers remain unfazed by hefty property taxes
Australian property — both commercial and residential —remains attractive to foreign investors despite major tax bar...
In most every area of our lives, we’re comfortable with the idea of paying an expert for their expertise.
Blogger: Shannon Davis, director, Metropole Property Strategists
If you want fantastic photos at your wedding, you’ll pay a professional photographer rather than relying on your friends and relatives to capture the moment.
And even if you’re handy around the house, you’re likely to pay a plumber to fix a leaking toilet.
But when it comes to buying real estate – whether it’s a home to live in or an investment purchase – people seem less inclined to turn to a buyer’s agent to help them get the best bang for their buck.
This is even more confounding when you consider that statistics show that most property investors fail.
People invest in real estate to gain a level of financial independence, yet we know that the majority never get past their first or second property.
Stats also show that most investors sell in the first five years, which means they’ve bought something that didn’t suit their needs.
A proficient property buyer’s agent can partially address this problem by researching areas that you may not have and offering a depth of experience of negotiating.
A buyer’s agent may not be the right decision
But in my mind, buying a property is only half the story, and just going to a buyer’s agent isn’t really enough.
I recently began working with a client in Adelaide. He’s a doctor and earns in an income inching towards half a million dollars per year.
He was looking to buy an investment property in Sydney and wanted to engage our services at Metropole.
I asked if he’d invested in property before, and he confirmed that he owned two investment properties: a house in regional town in Adelaide, and a mining town investment in Queensland.
Both properties were acquired through buyer’s agents and both were positively geared.
However, he was unhappy with their overall performance, as neither investment had grown in value.
“Why did you choose these properties?” I asked.
And he replied, “Because the buyer’s agent selected them.”
So, let me get this straight
Here’s a doctor who earns well over $400,000 a year.
That means he’s paying tax in the vicinity of $150,000 per year, on the highest possible tax rate of 45 per cent (47 per cent including the Medicare Levy).
He wants to invest in property and seeks out the advice of a professional buyer’s agent.
And that buyer’s agent’s advice was to invest in a property that adds more money to his taxable income?
That just doesn’t make any sense!
Earning an extra $50 or $60 per week in positive cash flow isn’t going to do anything for him in terms of building his long-term wealth.
Clearly, his buyer’s agent forgot to look at the big picture – they didn’t offer a property investment strategy.
I guess they didn’t ask him about his financial situation and what his long-term goals were.
Or perhaps this client wasn’t sure what he wanted to achieve in the first place?
He obviously had an understanding that he could make money from property, but it’s important to dig a little deeper than that, to ensure that the properties you invest in will actually help you create the financial future you want.
The smarter move for this client would have been to add a capital growth property to his portfolio.
That is, his strategy should have been (and is now) to build a substantial asset base by purchasing properties that increase in value (tax free).
Sure they would most likely be a little negatively geared and would not have put any money in his pocket on a weekly basis, but at the end of the year his net asset position would have been stronger and as his properties grew in value year-on-year, his cash flow would have also increased.
If you’re not clear on your property goals right now, that’s OK
A proficient property strategist (someone who’s not just a buyer’s agent) will be able to help you decide what you want your financial future to look like, so you can create a buying strategy that helps move you towards those goals.
Then and only then should an investment savvy buyer’s agent help you find the right investment to suit your needs.
But first be sure to find out what their level of expertise is.
If, for example, they’ve been buying and selling real estate for 10 or 15 years then they’re likely to know what sells, what doesn’t, which properties are in demand and how much activity the market is supporting.
This is the type of perspective money can’t buy and what you should be paying for
They should intimately know their patch – that one side of the street could be worth say 15 per cent more than the other side, because it’s got better views.
It’s information like this that can become your “secret weapon” as a buyer, and it is impossible to glean from internet research, monitoring the market or even the best property education.
Also I think they should be property investors themselves – not just theorists.
Having an independent property strategist (not a salesperson) help you set up a long-term wealth creation strategy and then using a buyer's agent to implement that strategy could well set you up to own the type of property that will outperform the market.
But then you should conduct regular reviews of the performance of your portfolio with your property strategist to ensure you remain on track towards your long-term goals.
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.