We’ve all heard the term ‘dead money’. If you have equity in your home and are not utilizing it to seed and grow your investment portfolio, then dead money is exactly what you have. A common mentality among the rich is to continually be investing capital to perpetuate financial growth to ensure a comfortable future.
There are numerous investment strategies which are touted as being the safest and/or most profitable vehicles to grow wealth including the two most common – property and shares.
Shares vs Property
In the eastern states of Australia, affordable rental properties are always in demand, and by securing expert property management in Melbourne or Sydney, where your investment is well managed and cost-effective, you can be building a solid investment portfolio. With property prices stalling and negative gearing under possible threat for future home purchases, the time to buy is now!
The way it works for many investors with substantial property portfolios, is to purchase a single property and either add value through renovations or wait until the property increases in value over time. Once there is enough equity in the property, use that as collateral to purchase a second property and then a third and so on – their own personal monopoly game.
One word of warning I would give is to careful consider investing in inner-city apartments in multi storey tower blocks. Instead look for house and land near infrastructure and amenities – see below.
Some investment gurus, often with a vested interest in selling you a particular product or stock, may advise you to invest your money in shares. They often use the logic that you can’t sell off a small piece of land if you need some fast cash but you can quickly cash in shares. What they don’t happen to spend much time focusing on, is that if the market drops or crashes, your money can literally vanish into thin air.
Tax is another thing which can take a bite out of share profits. Unless you have swathes of cash to burn, shares are best left to moderate investments.
The Key to Property Investing
The most crucial part of the process is to purchase properties whose rental income covers or almost covers the mortgage repayments and secondly, those which have a high tenancy rate to ensure steady income. This is where property managers are key factors in sourcing, securing and servicing the needs of outstanding tenants – with fees ranging around four percent of the rental yield, it is a small price to pay for the service provided which includes:
- Marketing and advertising
- Attending inspections
- Organising maintenance and repairs
- Receiving and monitoring rental income
- Organising mandatory fire equipment checks and other legal requirements
- Conducting regular property inspections
So what should you be looking for in a rental property? Easy, you should be looking for the things a tenant would prioritise.
People will always need homes to rent. The trick is for an investor s to identify a desirable property by thoroughly researching the rental market. Look for:
Crunch you numbers. It seems simple to buy a cheap home but many investors fall into the trap of paying more for a property than the rent can cover the repayments. Remember, you must plan for every contingency and the property may not be producing a rental yield for weeks at a time.
A property which is located walking distance to schools, universities, transport, shops and medical facilities, will be a far more rentable prospect than a one which is not.
Wiring, plumbing and heating units can be some of the big ticket repairs landlords will have to fork out for. When buying an older property, ensure these units are contemporary and well serviced.
Gardens should be drought-resistant and attractive yet minimalistic. Tenants are generally less house-proud than owner-occupiers.
Unlike homeowners, tenants are less attracted by large blocks of land which they may have to maintain. Likewise things such as swimming pools may be fine on luxury properties but can be expensive or difficult for a tenant to take care of. They also require conformity to stringent regulations around fencing etc. and can be more of a headache than an attraction.
Look for properties which offer a little bit extra or features such as:
- Ducted heating
Types of housing
Whilst it can be tempting to look at apartments or units as a cheap investment prospect, you are limited as to your ability to develop or add value to these types of properties. Beware of hidden exorbitant body corporate fees, particularly in complexes which offer selling points such as gymnasiums and swimming pools – many investors have been burned by the ongoing costs of these properties.
Investing has long been recognized as the best way to grow wealth. Done wisely and with a great deal of research and planning, investing in property may be the key to secure a comfortable and prosperous retirement.