The 1of of July heralds the start of a new financial year and it also the traditional time when many first time investors enter the property market in large numbers.
Blogger: Rory O'Rourke, O’Rourke Realty Investments
First time investors tend to flood the property market after July 1 because after they visit their accountant at the start of the new financial year, they realise how much tax they are paying and decide to buy an investment property to reduce their tax and create wealth.
It is unfortunate, that a large number of people rush into buying an investment property and as a result of making simple mistakes never buy a second investment property because they choose the wrong location, select the wrong tenants or put in place the wrong finance package.
Avoiding these early mistakes in property investment ensure that you go onto build a successful property portfolio and create personal wealth that can far exceed savings from your salary.
If you are considering buying an investment property for the first time, then you should consider the following points:
* If you plan to buy an investment property for the first time, make sure you obtain good financial and tax advice. Getting the correct finance in place can be just as important as selecting the investment property.
* Select an interest only loan and choose fixed product if you are concerned interest rates may rise in the future.
* Ensure that you fully claim all potential tax benefits such as those relating to depreciation which can add up to thousands of dollars in additional cash flow each year.
* Use the R.C.C location rule when buying an investment property. It should be located either near the River, Coast or City. Properties in these areas generally have demonstrated higher rates of capital growth and rental returns.
* Begin your property portfolio by purchasing a well located property for less than $500,000. Buying a lower priced property will give you good experience while at same time not financially over committing yourself. You can start by buying a smaller property in a high capital growth suburb such as an older home unit located near the river or close to the beach.
* Consider the land content of the investment property rather than the structure of the home. It is important to remember that land appreciates in value and the buildings depreciate in value. A property which has a land content of more than 75% has a greater chance of appreciating at a higher rate than a property where most of the value of the property is in the building.
* The block size of the property is also important. The larger the block the greater the potential the property has for future subdivision which will significantly increase the value of the property. You should check with the local Council to ascertain any future changes to land zoning which might allow the opportunity for higher density homes.
* Consider buying a property where there is a broad range of property owners rather than just investors. For example, if the area has a significant number of owner occupied homes it means that the potential pool of people wanting to buy your investment property in the future will be much higher than a property that just appeals to investors.
* Rental income is a key factor when choosing an investment property. Your property should be located close to schools, shops and transport to attract the highest number of tenants. You should get independent advice for a reputable property management company on likely weekly rental income before buying an investment property.
* Dont manage the investment property yourself. Employ the services of a professional property management company as they will select a reliable tenant and their services are tax deductible.
* Always work towards a strategy of buying several investment properties rather than just one or two. Through owning several investment properties, you can create significant amounts of personal wealth. To achieve this outcome, put in place a long term strategy and stick to it.
About Rory O'Rourke
Rory O’Rourke is the principal and licensee of O’Rourke Realty Investments in Perth and has been in the property industry for over 40 years.
Rory is a former Vice President of the International Real Estate Federation (FIABCI) Australian Chapter and was inducted into the International Who’s Who of Professionals for 2009/2010.
He has authored 3 bestselling books ‘Born Free Taxed to Death’, ‘I sold 22 homes in one day’ and ‘It’s Time… the Republic of Australia’.
These books can be accessed at http://www.orourke.com.au/books.html