Property investment could be a great way to build your wealth and achieve your long-term financial goals.
Here are some tips to help you work towards building your property portfolio.
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.
There are all sorts of strategies when it comes to property investment. It’s best to talk to your financial advisor or accountant about the right strategy for you, based on your financial circumstances and aspirations.
Rental yield vs capital growth
For some investors, rental yield is the primary goal.
There are two types of rental yield:
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.
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.
Once you’ve defined your goals and investment strategy, speak to us about how to fund your property investment.
You may be able to use the equity in your home for the purchase. Equity is the difference between the current market value of your property and how much you owe the bank. If you’d like to explore how much equity you have to work with, you can talk to us.
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.
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 to go 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.
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.