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’
I was interested in reading an article in this weekends Australia Financial Review which was titled ‘What worries the rich?’ – Firstly, who cares? Not me. Not because they are rich, just that it is an irrelevant question. We all have worries, and the worries of a particular demographic are no more important than any other demographic. However, in reading one particular persons comments I was astounded at the irony.
The rich person in question was Bruce Mathieson, who has a net wealth of over $1 billion. He said:
“I’d hate to think that I had a lot of money but my family and everyone around me were unhappy. That would be an absolute disaster.”
For anyone who doesn’t know, Bruce made the majority of his wealth via Poker Machines. Here is a guy who “sells hope, and provides misery” – claiming he’d hate to make anyone unhappy. Is he serious?
Poker machines provide nothing good to society. The only thing that poker machines are good at, is redistributing wealth from the poor to the rich. And governments falsely believe the tax revenue outweighs the cost of the social ills they create.
You might think this is slightly off topic for startup blog. But for me it sent me a clear message about what business is all about. Creating value for all those who participate in the value chain – not one sided value. If the cost of being wealthy, was creating heart ache for people, I’d rather be poor. In addition, I like to think we are entering an age where wealth creation is more often a result of creating value for society, not by tricking people.
There is no point being a successful entrepreneur, or selling a startup if we have no idea how to handle the money we get. So here is my top 10 financial life hacks.
- Spend less than you earn, no matter what that amount is. The net result is happiness.
- Allocate cash to savings & investments before anything the day you get your profits, pay or dividends.
- Never go into debt for anything which does not appreciate in value.
- The real definition of an Asset: Anything that puts money in your pocket. The accounting definition of an asset is flawed.
- Do not trade stocks. Trading makes the broker and tax man rich and you poor.
- The greatest financial instrument is ‘compounding’. It only happens when we hold assets, not by trading them.
- If you can’t afford a consumer product in cash, you can’t afford it.
- There is no such thing as ‘financial engineering’. It was invented by Wall street to trick you.
- The best type of share investment is an Index Fund. They are investments in civilization. If that fails, we have bigger worries than our money.
- Invest more in education than entertainment & ‘things’ and you will outdo society financially.