Property Investment FAQ's

Frequently asked questions about property investing...

Like any venture that involves money and investment, getting into property investment takes a lot of hard work and planning. The following series of beginner’s frequently asked questions should help steer you in the right direction:

Is property investment only for rich high earners?

Property investment works just as well with average earners as it does with those with high incomes. It’s rare anyone can buy a house outright straight away. You need to look for loans, mortgages and the equity in your own home. As long as you’re sure to make a return then your income really doesn’t matter, unless it interferes with your loan application, which is rare. If you are new to real estate however you will need an initial deposit (usually 10% or more).

Why this and not other forms of investment?

Although other forms of investment, particularly stocks and shares on average see similar rates of return as investment property, the risk involved with other investments can be a lot higher. Share prices can fluctuate daily due to stock market speculation. The housing market is a lot more stable, seeing either steady growth or steady decline.

What costs are involved?

The obvious costs are in the repayment of the investment property mortgage taken out to finance the property; however this is not the only cost. You need to be aware of stamp duty which can be up to 6% of the property’s value. There will also be legal fees, broker fees and various other costs involved with finding the property and the loan process, but this will be made clear to you at the time.

There will also be several ongoing costs such as the interest rates on the mortgage, insurance on the items in the home, residential rates, repairs (you need to maintain your property whether it's for you or your tenant).

When should I invest in property?

The best time to buy an investment property is when the market is rising, but just because your local area is in a slump doesn’t mean you can’t look elsewhere. Find a city with an area set for big development and get in there early. As the area becomes bigger and starts to prosper you will see great returns. You need to do substantial research about the location of your property. Buy to maximise profits, not because you like the look of the home or you think it would suit your family. It is not about your family, it is about making a return on your investment.

How do I utilise leverage and negative gearing?

Leverage is simply using somebody else’s money (borrowed money like a mortgage) to gain high returns in relation to your investment and to reduce your own liability for a loss. In other words you leveraged a small loan to get yourself into a better financial position. As long as the return on investment (ROI) and tax breaks are higher than the cost of borrowing the mortgage, you will make more money than if you did not borrow. This is where negative gearing comes in.

The government has allowed any losses incurred when renting out a property (i.e. the expenses of running the property are greater than the rental income) to be tax deductible. If performed right you can end up benefiting from the tax benefits of making a loss than making an income.

There are obviously a lot more things to consider but this should help you start your first investment property in the right frame of mind. Just remember knowledge is king; do your research!