Maximising Your Profits from Property

Building long term wealth is very difficult to achieve through salary and savings alone.

Learn how to build substantial wealth faster by leveraging your money and investing in real estate using borrowed funds.

Investing in property has long been trusted as the safest means of long term wealth creation. While the stock market certainly works well for many, it can be a volatile and risky roller coaster ride as is currently the case world wide.

Whilst property prices also rise and fall, generally cycles are a lot slower with mild peaks and troughs. Historically figures show that the average property value doubles every 7 – 10 years.

Property is one of the few investments that allows you to purchase largely with other people’s money (i.e. the bank) pay this back with other people’s money (i.e. rent) and in many cases enjoy a reduced tax commitment.

So what should you consider before you invest?

Be clear on your goals

This means understanding what you want to achieve from your investment. Is it cash flow, capital gain or both? Are you looking to build a long term nest egg for retirement?

Plan your structure to maximise returns

Consider how your investment should be structured to meet your financial goals. Seek advice regarding tax, type of loans available, repayment terms, cash flow positive investment options and more.

Consider ownership

The actual owner of a property can have significant cash flow and tax implications. For example, whether a couple purchases a property in one or both of their names will impact their legal and financial position.

Your expertise and available time

Are you a first time investor? If so, you may need to seek advice from professionals regarding insurance, financing, flexible structures and minimising bank fees, tax effectiveness, depreciation schedules etc.

Even if you are a professional investor you may or may not have the time to do it all yourself, and so may also need support from professional advisers to help you build your portfolio.

So once you have decided to take the plunge into the property market, how can you make a profit? There are four ways to make money.

1. Passive Appreciation

That’s when the value of your property goes up in line with the general property market. Over time, well located properties in Australia double in value every 7 – 10 years.

2. Active Appreciation

This is when you add value to your property. For example if you buy below market price, or when you renovate or redevelop your property.

3. Rental Return

Rentals from property provide cash flow and rental yields are at their most buoyant in years, driven by low vacancy rates. In some regions, rents are increasing between 5 – 10% as leases expire.

4. Tax Breaks

There are many tax breaks that you are allowed on your investment property. For example, you can claim the cost of two visits a year to your property plus cleaning, gardening, insurance, body corporate fees, etc.

Depreciation also provides you with significant tax breaks where you don’t have to spend any extra money. The Tax Office has schedules with rates of depreciation on its website. There are also specialist firms that will assist you to maximise your depreciation claims.

To invest in a top performing property, you need a balance of all four of these elements. Don’t focus too strongly on cash flow. This is because well located residential properties are often high growth, low yielding investments.

If you are looking for high yields, perhaps you should consider investing in shares or managed funds. Otherwise be prepared to let your property grow in value over time.

Refinancing

There is one further point to consider - would refinancing your home loan help you to reduce costs?

Competition is keen so you should look around to see if it is worth refinancing. It is important to bear in mind that there are fees and costs associated with switching, which need to be factored in to your calculations.

Conclusion

Using these strategies will help you to improve the performance of your investment, hopefully ensuring that you make a healthy profit.