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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