Ironfish has developed a proven property investment system designed to reduce risk and boost performance. We’ve distilled that expertise to present investors with eight essential rules for property investment.
Property Rule 1: One to two properties will not secure your future
- You need a portfolio, which is defined as “a collection of investments held by an institution or a private individual”.
- At some point, you will have to pay off the remaining mortgages, so you need to buy more properties than you ultimately intend to hold in order to pay off remaining debt and maintain some freehold properties to deliver rental income. Depending on your lifestyle, you may need more than four properties.
Property Rule 2: Properties must be easy to hold
- Holding costs must be manageable and low-risk or you may be forced to sell when you don’t want to.
- Quality, new properties are usually easier to hold than older properties due to the additional tax depreciation benefits, gearing tax benefits and higher rentals.
- Wherever possible, buy time before you have to settle and cash flow the property.
Property Rule 3: Get the right property for the right area
- Live where you like to live and invest where other people like to live.
- People who live close to a CBD trade space (land) for convenience (time), whereas those who live away from a CBD trade convenience (time) for space (land).
- Different areas appeal to different types of tenants.
Property Rule 4: Every dog has its day
- There is no magic area in which to invest.
- Investors need flexibility to invest where the best opportunities are located.
- Geographically diverse portfolios often reduce risk and maximise returns.
Property Rule 5: DIY costs more than you think
- Most investors don’t have the time or expertise to identify properties that will make the best investment. As a result they miss opportunities.
- Successful investors use their strengths and manage their weaknesses by seeking professional help. Identify specialists who have experience in accessing, researching and selecting quality investment properties – and let them do the hard work for you.
Property Rule 6: Avoid student accommodation and serviced apartments
Ironfish strategically targets properties that will achieve strong capital growth, are easy to finance and can potentially be sold to either owner-occupiers or investors in the future.
Serviced apartments and student accommodation operate more like commercial properties even though people live in them. They usually generate a higher rental return, but if you’re targeting capital growth there are two important disadvantages that outweigh the slightly higher rental returns:
1. Hard to finance
- Investors need a larger deposit (usually 20-35%) because you can usually only borrow 65-75% LVR (sometimes a little higher with additional security).
- Many lenders don’t like these property types due to the risk of not being able to sell quickly if and/or when they have to because they can only be sold to investors.
2. Less capital growth
- Owner-occupiers cannot live in them, meaning you can only sell to investors in the future and this limits to whom you can sell. As owner-occupiers tend to be more emotional purchasers and pay higher prices excluding this group limits the potential sale price.
Property Rule 7: The value of delayed settlement
If there is an opportunity to delay paying holding costs, many astute investors will take advantage of securing a property without impacting their cash flow.
The property market is competitive and in today’s market purchasers need to get in early to secure the best deals. As many property opportunities are sold off-plan, investors need to be comfortable with this method of buying property, or potentially miss out.
Ironfish undertakes extensive due diligence to ensure investors are offered VIP opportunities, as well as ensuring the properties will be of excellent quality on completion.
When do I have to settle?
Property normally settles as soon as it is complete. Any delay before settlement can be advantageous – the longer it takes to complete construction, the longer settlement is delayed. As a guide only, off-plan settlement times are typically:
- Apartments: 18 months to four years.
- Townhouses: 9-12 months.
- Houses: between 3-6 months.
Leverage to build your portfolio faster
A person’s income tends not to increase as fast as the property market and so delays getting into the market cost investors thousands of dollars.
An off-plan strategy allows you to strategically plan the timing of settlement and, when done correctly and carefully, can allow you to buy more properties. You don’t need to cash flow the property in the meantime, which is a strategic advantage.
- The longer you delay settlement and cash flowing a property, the more money you can save in the meantime towards a deposit for the next property.
- The longer you delay borrowing money, the better your ability to strategically finance your portfolio.
- Benefit from investing in infrastructure that adds value to your property’s area – and the property’s value – while it’s being built.
Extra benefits (some states)
In some states there are stamp duty reductions or exemptions when buying off-plan. Speak with an Ironfish Property Strategist for more information.
Property Rule 8: New properties are easier to cash flow
Easy to cash flow and less maintenance:
- Delay settlement by buying off-plan and before construction is completed.
- Holding costs are usually lower due to tax benefits, particularly the first five years.
- Depending on the property type and area, new properties tend to attract professional tenants who typically take care of the asset.
- Little maintenance is typically required on a property in the first five years.
- Most new properties have a statutory construction warranty of up to seven years (depending on property type and location).
Depreciation Examples: Old vs New