Start Up Blog

Property Investing 101

Posted in entrepreneurship by Steve Sammartino on January 27, 2012

A startup blog regular – Josh Moore has been asking for as post on Property Investing. Which like anything can be treated like a startup. It’s a big topic with a million books on it. But I have had a side interest in it for some time. So here are some tips on stuff that I think is worth knowing when investing in property. A bit of a 101 guide:

  • Property returns on average about 10%. Which is quite similar to the share market on.
  • Banks will lend much more money for property investments due to lower volatility than shares.
  • You should buy investment properties that you, yourself would like to live in.
  • Land goes up in value. Concrete and air does not increase in value.
  • Period buildings (unique styles, historical) have higher capital growth than the average property.
  • Rental returns are usually below 5% per annum.
  • Property investment can be a quicker path to wealth than shares due to leverage (borrowing money).
  • Getting someone to manage a property costs about 7% of the rent per week. (so you wont have to fix toilets)
  • You should always allow for 6 weeks a year vacancy on rental properties.
  • High capital growth properties & areas, tend to have lower rental yields.
  • High yield properties tend to have low capital growth.
  • Areas going through gentrification usually have greater capital growth.
  • A rental guarantee is a lie – the rent for the guarantee period is usually built into the selling price.
  • Auctions are invented by real estate agents who want it to sell quick to get their money.
  • Homes on busy roads have a higher turnover of renters and reduced yield.
  • Homes near water (river, beach, lake) grow faster and fetch a premium.
  • Tax benefits of property investment in Australia are a significant advantage.
  • You can draw out profits (capital gain)  from a property that has grown in value and not pay tax on it
  • You can buy insurance against tenants in case they damage your house (Landlord Insurance).
  • Investors should choose between yield or capital growth when investing.
  • Capital gains tax on selling is 50% lower if you’ve held the property for over 12 months.
  • Property investing is very dependent on government policy, technological change, and infrastructure.
  • The key to investing is compound growth. Trading removes the power of compounding.
  • Trading properties & developing, is not investing, they are more like running businesses.
  • Trading properties is expensive – acquisition usually costs between 6-9% of market value.
  • Disposing of property usually costs around 3-5% of market value.
  • The property market can go through long periods of sustained stagnation, 10% returns is 100 year+ average.
  • Buying properties off the plan is risky. The saving in stamp duty can be a false friend.
  • Mortgage insurance is for the bank, not the mortgage holder.
  • The word mortgage is French, meaning; An engagement until death.
  • I believe that property is a get rich slow category
  • The biggest land holder on earth is ‘The Catholic Church’

Hope this helps getting you off and running in your property ventures. Good authors on the subject include; Jane Somers and Dolf De Roos.

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8 Responses

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  1. property in the usa for sale said, on January 28, 2012 at 10:15 pm

    Interesting blog! It’s a nice tips and thanks for sharing to us.

  2. investment in property said, on January 29, 2012 at 4:56 pm

    I looking the site. this site is very nice. i like it. i get more information on website. this realy blog site.
    investment in property

  3. Andrew Castro said, on March 15, 2012 at 8:17 pm

    great site. do you have a step by step guide to investing 101 in real estate?

  4. brianlinnekens said, on November 22, 2012 at 9:56 pm

    Thanks for sharing.

    Brian Linnekens

  5. Mel Laurence said, on April 13, 2013 at 9:48 am

    You can still purchase properties within 10km of the Brisbane CBD that should provide good capital growth over the long term while not leaving you too much out of pocket each week.

  6. property investment uk said, on May 14, 2013 at 7:04 am

    Nice list for newbie investors. The disposing costs of 3-5% are figures that buyers tend to overlook, but it can eat into your bottom line. Add in the buying costs (in the UK) and you’re looking at another 3-5%!

  7. Ryan McLean said, on June 10, 2013 at 11:48 pm

    Some pretty decent property investment tips in here, a lot which people don’t understand.
    Eg. “Mortgage insurance is for the bank, not the investor” – Many people don’t realise what this cost is or why they have to pay it. If they did realise this then they could probably avoid it.

    One I disagree with “High yield properties tend to have low capital growth”. There are many different factors that drive capital growth in an area…to say that because the area has a high rental yield that capital growth will be small cannot be determined, and is a very blanket statement.

  8. hahluwalia49Harpal said, on December 4, 2013 at 6:55 pm

    An excellent Blog with some good information, specially for beginners. Property is definitely a “Get Rich Scheme” but NOT a “Get Rich Quick Scheme”!


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