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Switzer's top 10 tips for successful property investing

Regardless of the state of the property market, the fundamentals of property investment don’t change, and if you stick to 10 key lessons, you may just grow rich, reports widely respected financial commentator, Peter Switzer.

 

Common-sense should be at the forefront of your decisions, and be sure you won’t lose sleep over the strategy path you choose. “Investing is really meant to be fun, invigorating and profitable,” says Switzer.  

 

Here are the 10 lessons Switzer says to follow

  1. Not just as simple as rental yields – property provides different returns compared to other assets. The end game for property investment is cash flow to maintain, and capital growth to cash you out. Its not as simple as calculating rental yields, you must also calculate returns which will include tax benefits to show true return (combination of yearly growth and rent return) plus any tax refunds.
  2. Growth investors V cash flow investors – largely unsubstantiated. Cash flow and capital growth are equally as imperative and you do not need to sacrifice one for the other. Lack of consideration of cash flow can result in inability to stay in the market, and discount of potential growth leads to possible failure to create a strong net worth position.
  3.  Property management is a continuous job – you can’t just buy and forget. Once you have compiled your property portfolio, you must continue to monitor and manage. If the property has reached its purchase, identify this, and know when to liquidate, and also monitor properties that may need to be liquidated early. Make sure liquidation occurs at times when income and tax factors will be most financially viable. You also need a good property manager to look after your asset.
  4.  You don’t have to spend lots – be comfortable with your upper limit purchase price. Properties that perform well don’t need to be the most expense ones. This can often work in reverse. “More important is your own comfort and willingness to continue to increase the number of properties you hold, within your risk profile.”
  5.  Carry out your due diligence! Keep a commercial approach to property buying, leave the emotion at the door. Know the right questions to ask and who these questions should be directed at. Fully understand any agreements attached to the property, research council plans, the area, population movements, and current situation of rentals and sales in the area.
  6.  Access your own tax benefits – be smarter than your accountant. Know what tax benefits are available and use them as soon as you can, this will be beneficial when periods of sluggish capital gains are in play. At the end of the day you are the one responsible for your own tax return, even though you may employ professional to help you. Keep in mind that regardless of any tax benefits that may be available, never buy an investment property for tax benefits alone, it should be a good investment for your situation.
  7.  Choose wisely with your purchasing structure. Strongly consider the structure you will be buying the property in, if your strategy is ‘buy and hold’ then the structure must be efficient. Plan ahead 10+ years and choose a structure that will work now, and then. Trust and company structures aren’t he best and most profitable way to buy property, and they do not automatically protect you.
  8.  Hiring property manager does not release you of your landlord responsibilitiesKnow the rules of property management in the state you are buying. Use online resources such as real estate institutes and fair trading websites. Don’t forget up to date and sufficient landlord insurance.
  9.  Be wary of high-risk strategies suggested at ‘seminars’Watch out for ‘rags-to-riches gurus’, high priced seminars and unusual investment strategies. If it sounds too good to be true, you know the rest…it probably is! Switzer says he is yet to see properties or strategies sold at these seminars come off as good investments and/or suitable to the actual person buying them.
  10.  Work to minimise debt, but be aware mortgage rules with regards to line of creditThe tax office has strict rules with drawing back funds from your line of credit, and capitalising on your loan is a flat out ‘don’t do.’ A key position for a property investor is one of lowering debt, so work on ways to reduce your loans, even though you may see tax benefits diminishing.

 

Hannah Schuhmann agrees whole-heartedly with Switzers’ rules to follow when investing in property.  Property is a key element of any investment portfolio, but like investments, do your research and buy smart! 

 

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