Property Investing

Property Investing

You would have to agree with me,

Aussies have for a long period of time have had a love of buying property to live in or for buying to rent out as an investment property

Why is this?

The answer is pretty simple “It’s Mine”. in Australia, there is a sense of achieving once you have bought your own home and according to Maslow’s hierarchy of needs ticks a couple of box’s particularly Esteem.

And it also covers the basic level of providing shelter.

So ok that’s explains buying property for living in, but why property investing?

When you look at the house prices over a long period, house prices in Australia continue to increase in value. Looking at the graph below depicts median house and unit prices in Melbourne over the past decade in seasonally adjusted terms.

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The rule of thumb is housing prices double every 7.2 to 10 years in Australia and you can see from the graph it supports this argument.

If you are a property investor and using the above example in the graph this would have delivered a capital gain of approximately $400,000.00 over ten years. That’s a whopping $40,000.00 per year.

And what else!!!

When you throw in the tax benefits of Property Investing such as being allowed to claim depreciation of the building and fixture and fittings, the interest from any property investment loans used to buy the investment property and repairs and maintenance amongst others, property investment become a very attractive value proposition.

So what are my options?
There are many, but first let’s look at the six basic principles as a guide a strategic and profitable long term investing.

Investing in property comes down to a matrix of three basic principles to guide a strategy for profitable long term investing.

1. Investing for Equity Growth for Cash Flow
2. Investing Directly (or a company structure) or via a SMSF
3. Residential or Commercial property

The first two things to consider when investing is where you are in the investment journey: are you accumulating properties for equity growth or buying properties which delivers a positive cash flow and when to transition from accumulating to cash flow.

The answer is?

Achieving both would be ideal, however depending were you are in your wealth plan will give you the right choice. It may be first property is for Equity Growth the next for cash flow.

After considering what your goal is the next consideration is what type of structure to use either directly in your own name, registered company, family trust or through a SMSF.

They all offer benefits, when using a SMSF for investing is very tax effective under the current tax laws. When investing in properties directly, it is easier leverage properties, renovate, develop and sub divide with a variety of finance options. Some of these activities are not allowed or are limited with a SMSF.

The last is question is residential or commercial investment properties?

There could be a combination of the two types, however there are some basic differences.
Residential offer greater range of lenders for funding and offer greater scope for renovating the building to increase value etc. also to easier rent out than commercial properties. It is also noted some residential areas can increase in value very rapidly, but that is another topic.

Commercial can provide better net returns as all out goings are paid by the tenant.
Typically, they have longer term agreements with agreed rent increases during the lease period. Unlike residential properties commercial properties can take longer to rent out once becoming vacant.

If you have any questions regarding buying a property in your SMSF please contact SMSF Loans Melbourne for a free catch up or just a quick chat to review what your SMSF is doing regarding buying property and how we may help.

Contact SMSF Loans Melbourne here.