29 May 2008

Don’t think first home, think first investment property

If the current state of the housing market in Australia makes you feel like you will never be able to afford your own home and you could be destined to rent for the rest of your life, there is good news for those who are prepared to change their thinking. Instead of thinking “first home”, think “first investment”. Why not keep renting a place in which to live and buy an investment property instead?

It has become increasingly popular for young Australians to buy investment properties and choose the option of renting. In many circumstances the decision to rent and buy an investment property makes a lot of sense financially. By renting, the benefits of flexibility are maintained and it is usually a cheaper alternative to owning your own home.

When you concentrate on buying solely for investment purposes, it’s not necessary to take into consideration your personal property requirements during your property hunt. If the property you purchase as an investment has only one garage or fewer bedrooms than your ideal property, it won’t matter. It is likely to be less expensive, however it will make it easier for you to end the constant succession of disappointment and get your foot in the door of the real estate market.

Even if you would not live in it yourself, you should still select your investment property using the established and successful criteria that satisfies a high-quality investment. Above all, this means purchasing an asset with strong capital growth potential. Seek out locations where demand from buyers has steadily exceeded supply for an extended time.

Organisations such as Australian Property Monitors and the Real Estate Institute frequently publish median house price movements. www.realestate.com.au and www.domain.com.au also track these details on a regular basis so you can keep an eye on them yourself over a period of time. If the median price for a particular suburb has increased at a faster rate than the rest of the market in that area over at least five years, it could be a sign of potential strong capital growth.

It’s also a good idea to attend as many auctions and open houses as possible and do your research on the internet before purchasing to get a feel for the market in your desired location.

The rule of thumb for buying an investment property is to hold it for at least seven to ten years and let compounding work its magic. As an investor, you have access to tax benefits unavailable to homeowners. You can claim holding costs like interest on the loan, repairs, council rates, insurance and property management fees against the rental income. If the holding expenses are greater than the rental income, the difference can be used to decrease your tax liability. This keeps more money in your pocket and makes it easier to keep the property.

  • If buying your own home is out of reach, an investment property may be what you’re looking for. It may turn out better financially.
  • When choosing for capital growth potential, buy where demand steadily exceeds supply.
  • Expect to hold your investment for at least seven to ten years to maximise the effects of compounding. You’ve probably heard the old saying “It’s not the timing of the market – it’s the TIME IN the market!”
  • Use tax breaks to minimise holding costs and tenants to contribute towards the payment of the debt.
  • Once you have equity in your investment, this equity can be used to purchase more investments. Then you’re on your way to truly creating wealth and financial security for you and your family.
  • The changes to the FHOG may to some extent affect this strategy. We will definitely take that into consideration when reviewing your options.

Call the office today for your FREE appraisal to see if this strategy will work for you!

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