Are you ready to build a property investment portfolio?

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Property Investing

When I moved to Australia 16 years ago, I was overwhelmed with all the information about building wealth and investing in properties that were available to me. Property investment could be a great way to build your wealth and achieve your long-term financial goals. It has the potential to generate capital growth (an increase in the value of your asset) as well as rental income.

 

Getting started in property investing is exciting and may be easier than you think. Here are some tips to help you work towards building your property portfolio.

 

Set your goals

Not sure where to start? A simple tip is to work out your goals then work backwards. What are you hoping to achieve in the long run? Perhaps you want a passive income of $2,000 a week steadily flowing into your bank account or to be able to live off a yearly amount in retirement. From there, you can determine how many properties you will need to own at what price point and rental income to achieve your goals.

 

Define your investment strategy

There are all sorts of strategies when it comes to property investment. It’s best to talk to your financial advisor or accountant, your solicitor and real estate agent about the right property investment strategy for you, based on your financial circumstances and aspirations. You need a team behind you and that includes us (your finance specialist).

Property Investment Strategies

 

Understand rental yield vs capital growth

For some investors, rental yield is the primary goal. There are two types of rental yield:

Gross rental yield is your annual rental income divided by the property value, multiplied by 100. Net rental yield is your total rental income, less any expenses incurred in owning the property, expressed as a percentage of the purchase price.

For other investors, capital growth is more important.  It can be tricky to achieve both solid capital growth and a high rental yield, so often investors have one or the other in mind.

One investment strategy is to aim for a portfolio with certain properties that deliver high rental yields and some that offer strong capital returns.

How to estimate the rental return on an investment property

Positive gearing vs negative gearing explained

Positive gearing is when the gross rental income is greater than the costs associated with owning a property. In other words, the property generates a positive cash flow.

Negative gearing is when the rental income is less than your outgoings. One of the drawcards of negative gearing is that you can offset losses against your salary, thereby reducing your total taxable income and tax payable.

Again, it’s recommended to speak to a professional about whether positive versus negative gearing is right for you.

 

Get your finances in order

Once you’ve defined your goals and investment strategy, speak to us about how to fund your property investment. The deposit can come from your savings or alternatively from the equity in your home. Equity is the difference between the current market value of your property and how much you owe the bank. You may be able to use the equity in your home for the purchase.  If you’d like to explore how much equity you have to work with, you can talk to us. It can also be possible to invest in property via a self managed superannuation fund using your super savings as a deposit.

Find out how much you can borrow.  This is an essential step in order to be realistic in your expectations and focus your property hunting time on properties you can afford.

We can also help you create a budget for all the costs you’re likely to incur as you build your property portfolio, such as council rates, management fees and insurances.

Start the property hunt

The final step is to start looking for the right investment property in the right location.

Your investment strategy and what you’re trying to achieve will ultimately impact what and where you buy.

Generally speaking, if capital growth is your motivator, consider going for suburbs that appeal to a large demographic – ones that have plenty of amenities like schools, public transport and shopping precincts.

For inspiration about where to find properties with big rental returns, including the top 10 highest rental yield suburbs per state/territory, check out CoreLogic’s best performers for 2021.

Tip: For free suburb and property reports containing a wealth of information about everything from rental yields to comparative sales, get in touch.

 

A word about diversification

Diversification is the practice of spreading your investments around to mitigate risk of loss. In terms of real estate, that might mean investing in different geographical markets, investment strategies and property types (residential and commercial, for example). As you build out your property portfolio, it’s a good idea to keep this in mind.

 

You can download our Property Investment Guide here.

How about attending our webinar to learn the process of Investing in Properties? We regularly conduct webinars for would be property investors. If you can’t wait for our next webinar, you can simply send us an email at loans@maverickfinance.com.au and we will send you a recording.

 

To find out if you’re ready to consider investing in property, speak to a Maverick Finance Broker who’ll be able to walk you through the process. As always, all of us at Maverick Finance are here to support you on your investment journey. You can get in touch with us by calling 0430 144 008 or send us an email to loans@maverickfinance.com.au, or simply leave your contact details and we’ll call you back. You can also book a complimentary meeting with us at calendly.com/maverickfinance.

 

This article is for general information only and should not be considered personal financial advice.   Before making a financial decision, you should seek independent advice from a mortgage broker, financial planner or an accountant.

Maria Papa is a senior property and finance expert specialising in home loans, investment loans, self-employed loans, alt doc loans, car loans, personal loans and loan protection.  She has offices in Sydney, Melbourne and Manila.  If you have questions, you can call Maria at 0430 144 008 or email her at mpapa@maverickfinance.com.au.

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