A startup blog regular – Josh Moore has been asking for as post on Property Investing. Which like anything can be treated like a startup. It’s a big topic with a million books on it. But I have had a side interest in it for some time. So here are some tips on stuff that I think is worth knowing when investing in property. A bit of a 101 guide:
- Property returns on average about 10%. Which is quite similar to the share market on.
- Banks will lend much more money for property investments due to lower volatility than shares.
- You should buy investment properties that you, yourself would like to live in.
- Land goes up in value. Concrete and air does not increase in value.
- Period buildings (unique styles, historical) have higher capital growth than the average property.
- Rental returns are usually below 5% per annum.
- Property investment can be a quicker path to wealth than shares due to leverage (borrowing money).
- Getting someone to manage a property costs about 7% of the rent per week. (so you wont have to fix toilets)
- You should always allow for 6 weeks a year vacancy on rental properties.
- High capital growth properties & areas, tend to have lower rental yields.
- High yield properties tend to have low capital growth.
- Areas going through gentrification usually have greater capital growth.
- A rental guarantee is a lie – the rent for the guarantee period is usually built into the selling price.
- Auctions are invented by real estate agents who want it to sell quick to get their money.
- Homes on busy roads have a higher turnover of renters and reduced yield.
- Homes near water (river, beach, lake) grow faster and fetch a premium.
- Tax benefits of property investment in Australia are a significant advantage.
- You can draw out profits (capital gain) from a property that has grown in value and not pay tax on it
- You can buy insurance against tenants in case they damage your house (Landlord Insurance).
- Investors should choose between yield or capital growth when investing.
- Capital gains tax on selling is 50% lower if you’ve held the property for over 12 months.
- Property investing is very dependent on government policy, technological change, and infrastructure.
- The key to investing is compound growth. Trading removes the power of compounding.
- Trading properties & developing, is not investing, they are more like running businesses.
- Trading properties is expensive – acquisition usually costs between 6-9% of market value.
- Disposing of property usually costs around 3-5% of market value.
- The property market can go through long periods of sustained stagnation, 10% returns is 100 year+ average.
- Buying properties off the plan is risky. The saving in stamp duty can be a false friend.
- Mortgage insurance is for the bank, not the mortgage holder.
- The word mortgage is French, meaning; An engagement until death.
- I believe that property is a get rich slow category
- The biggest land holder on earth is ‘The Catholic Church’
Hope this helps getting you off and running in your property ventures. Good authors on the subject include; Jane Somers and Dolf De Roos.
