Getting your first investment property is a big move toward a better future with more money and safety. But it’s risky too. Michael Sloan, from The Successful Investor, shares five tips to help you make smart choices when buying an investment property.
1. Owning More Properties
Many folks use the value of their home to help buy their first investment place. Then, they use both their home’s value and their investment property’s value to buy even more places. This way, it becomes easier to own lots of properties over time.
To make this plan work, it’s important to understand what “equity” means and where you stand with it. Also, don’t stretch yourself too thin. It’s risky to use up all your equity, especially if it leaves you with no extra money for emergencies.
2. Tax Benefits
There are good tax breaks, like depreciation, that help your tenants and tax savings mostly cover the cost of your investment property.
To get the most tax deductions and savings possible, hire a pro called a quantity surveyor to make a schedule for depreciation. Your accountant shouldn’t handle this job.
3. Making Money or Losing Money
Negative gearing means you’re putting more money into the property each year than you’re getting back from it.
Positive cash flow is the opposite. It means you’re making money from the property each year, after considering all costs and tax breaks.
Not knowing how much a property will cost you each week is a mistake many property investors make.
Understanding negative gearing is key. It’s a common way to start investing in property, but it means you need to add extra money to the property each month. Eventually, though, each property will start making more money than it costs, so you won’t have to keep adding funds.
4. Researching Investment Properties
Getting the basics right in property investing is crucial. The good news is, if you do your homework, it’s tough to go wrong. Always aim to buy in places that are in high demand, close to public transport, good schools, and other important facilities. This will help you find good tenants.
Don’t just focus on your own neighborhood or where you might want to live someday. You can buy anywhere in Australia, so explore your options.
It’s also smart to spread out your investments. Buying in the same place might seem easy after the first purchase, but it puts all your eggs in one basket, which is risky.
5. Deciding Between a House or an Apartment
This question is a big one and there’s no easy answer. Both can be good choices, but it depends on what fits your budget, cash flow, and what’s popular in the area.
For example, a fancy terrace house in inner city Melbourne might seem great for making money, but after taxes, it could end up costing you $300 a week. This kind of expense can cause money problems, especially for regular investors.
Make sure you only buy what you can afford. This keeps you safe and sets you up to buy more properties later on.
Ready to start making smart financial decisions on your property investment? A financial advisor can guide you in investing wisely!
To find out if our strategies are right for you, feel free to contact 360 Financial Strategists online or on 03 9427 0855.
