Property Investment Tips

Property Rule 1:
1-2 properties will not secure your future

• 1 or 2 properties will not be enough to secure your future – you need a "portfolio"
• "Portfolio" means a collection of investments held by an institution or a private individual
• Sometime in the distant future, you will have to pay off the remaining mortgages, therefore you need to get more properties than you intend to ultimately hold onto, so you can pay off any remaining debt and still have at least 3 "paid off" properties delivering you a steady rental income. Depending on your lifestyle, you may need many more properties than 4!

Property Rule 2:
Properties must be easy to hold

• The longer you hold onto a property, the luckier you become…
• 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 onto than older properties due to the additional tax depreciation benefits for new property, plus "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)
• People 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 suburb / city that is always the best place to invest – "Every dog has its day"
• 21st Century investors need greater flexibility to invest where the best opportunities are
• Geographically diverse portfolios reduce risk and maximize returns

Property Rule 5:
DIY (Do It Yourself) will cost you more than you think!

• Unfortunately most investors don't have the time and expertise to be able to recognize which property will make the best investment, and miss many fantastic opportunities
• Successful investors utilize their strengths and manage their weaknesses (leverage of experts)
• Successful investors identify specialists who have experience in accessing, researching and selecting quality investment properties, and get them to do all the work!

Property Rule 6:
Avoid Student Accommodation or 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 future. This criterion will ensure the best price and easiest sale in future if/when an investor needs to sell (even though you should never sell unless you absolutely have to). Serviced Apartments and Student Accommodation operate more like commercial properties than residential properties (even though people live/stay in them). The advantage of them is that usually they will generate a higher rental return.

There are two important disadvantages (if you are targeting capital growth) to these types of property that far outweigh the slightly higher rental returns:

1. Hard to finance
   • Investors need a larger deposit than normal residential (usually 20-35%) because you can usually only borrow 65-75% as an LVR (sometimes a little higher with additional security)
   • Many lenders don't like these types of property due to the perceived (and actual) risk in not being able to sell quickly if / when they had to because you can only sell them to an investor
2. Less capital growth
   • There are restrictions of use on the properties that exclude owner occupiers living in them which means that you can only sell in the future to investors (limiting your future sellers market)
   • Owner occupiers tend to be more emotional purchasers and pay higher prices. By excluding being able to sell to this group you limit the potential sale price you may get if/when you sell.

Property Rule 7:
Learn the value of delayed settlement

The property market is very competitive now and purchasers need to get in as early as possible to secure the best opportunities, choice and price. Many of the best property opportunities are sold "off plan" (before they are built). Therefore, investors need to find ways to become comfortable with the process of buying "off plan" or simply miss out. Ironfish does extensive due diligence and research for investors to ensure that they get VIP opportunities that may not otherwise be available to them, and ensure that the properties will be of excellent quality once completed.

Properties make money over time and the longer you hold onto them the "luckier" you get. Holding costs are extremely important and if there is an opportunity to delay paying holding costs then astute investors are extremely motivated to take advantage of securing properties, without impacting their cash flow.

When do I have to settle?

Normally, you need to settle a property as soon as it is complete, so the longer it takes to complete construction, the longer you can delay settlement. Apartments offer the greatest time delay benefit before settlement, houses the least benefit – any time delay before settlement is advantageous.

Typical off plan settlement times for different types of property:

• Apartments are contained in larger buildings and therefore usually take the longest time to build. They settle anywhere between 18 months - 4 years after purchasing off plan
• Townhouses don't take quite as long to build. They complete and settle sooner - typically 9 - 12 months after purchasing off plan
• Houses don't take long to build and therefore must be settled typically between 3 - 6 months after purchasing off plan

Leverage to build your portfolio faster

Most people's income does not increase as fast as the property market and so delays at getting in the market cost investors thousands of dollars.

An off plan strategy allows you to strategically plan the timing around when you must settle properties and (when done correctly and carefully) can allow you to buy more properties than you otherwise would be able to do. You don't need to cash flow the property in the meantime which is a huge strategic advantage.

• The longer you can delay settlement (and cash flowing the property), then the more money you can save in the meantime towards a deposit for the next property
• The longer you can delay having to borrow money from a lender the better in terms of your strategic financing of your portfolio
• You can benefit from infrastructure investment surrounding your property that adds value to your property's area and your property's value while it is being built.

Extra benefits (Some states)

In some states there are also stamp duty reductions or exemptions when buying off plan - speak to an Ironfish Property Strategist to find out which States offer these kinds of incentives.

Property Rule 8:
New Properties are easier to cash flow

Easy to cash flow and less maintenance:

• You can delay settlement for new properties by buying off plan and before construction is completed
• Holding Costs are usually lower than for older properties due to greater tax benefits particularly in the first 5 years
• Newer properties tend to attract more professional tenants / families (depending on the property type and area) who tend to look after newer properties better
• Very little maintenance is usually required on a property in the first 5 years
• Most new properties have a statutory construction warranty of up to 7 years (depending on property type and location)

 

 

Depreciation Examples - Old Vs New

Older Property (Year of Construction: 1972)
Purchase Price	Depreciation Year 1	Depreciation Year 2	Depreciation Year 3	Depreciation Year 4	Depreciation Year 5
$450,000	$6,852	$5,720	$4,953	$6,852	$6,852

New Property (Year of Construction: 2010)
Purchase Price	Depreciation Year 1	Depreciation Year 2	Depreciation Year 3	Depreciation Year 4	Depreciation Year 5
$450,000	$15,824	$14,017	$12,113	$10,981	$10,342