Friday, February 9, 2007

Tips for successful investing in property

So it seems that while we have been on our mid semester break the housing market has becoming a hot topic, with suggestions that housing affordability, both for rent and sale, may become an ‘election decider’. As a Real Estate industry member I am of course a little bit excited by this as housing is something close to my heart and I believe everyone should be have access to affordable and acceptable housing as a foundation to lead their best lives. So next month, I will try to answer the questions raised in the media, look at what the government is doing, what they could be doing and what you should do to combat the increase in housing.

This month will complete my three part ‘first home buyer’ series by looking at simple tricks of the trade for how to better your rental and capital return on your investment.

Ways to increase your investment return

Talk to serviced and short stay businesses
This is a very difficult type of investment for the first homebuyer and it is often not recommended by institutions but it is an interesting cash positive option. Make sure you check these points if you’re thinking about entering this niche market.
1) Research the history and success of who is managing the services and see if there are any takeovers in the future
2) Look at guaranteed rentals, lease terms and incremental rent increases. These can be great as you don’t have to worry about having the apartment rented all the time and can structure your repayment.
3) Have the apartment independently valued as some guaranteed rentals are paid for by you after inflated purchase prices. Banks will insist on a valuation.

A story of furniture increasing your rental return
Ben bought a vacant 2 bedroom apartment for $400,000. He advertised to rent it out at $400per week unfurnished on a 12 month lease. It cost $1,000 in advertising and he found a tenant within a week. After his total outgoings he began receiving $300 per week to put towards his mortgage. Ben understood that if his outgoings didn’t change he would have $300 per week continually with no change. His friend mentioned that he should furnish it as she had done this herself and found a large company to rent the apartment to put their staff in during interstate projects. When it came time for Ben to re rent the apartment he went to IKEA and bought 2 bedrooms worth of furniture including mattresses, sheets, forks, plates and electrical goods at a cost of $15,000. It cost $1,375 in advertising and took 3 weeks to find a tenant Ben but was able to secure a professional couple from overseas as tenants at $550 per week. He figured that if he depreciated the furniture at $290 per week the furniture will have paid for itself within 12 months and after outgoings he would still receive $165 per week. Ben was happy to chip in the extra money himself towards his mortgage for the first year because once the furniture was paid off, he would receive $455 per week continually and be in a position to pay off his mortgage years earlier! Yeah for BEN!

Try and purchase with land under you
Although purchasing apartments on strata titles (basically high rise buildings) can be attractive as they are affordable vehicles to enter the market you purchase very little land. Effectively if you are purchasing a very small percentage of the land the entire building takes up. As the old saying goes, Real Estate is all about Location Location Location. The price of land is more likely to increase then the building on it, so the more land you have, the better!

Think outside the square
Have you thought about other ways of entering the property market rather then residential? You can purchase commercial property such as office space, shops, warehouses, hotels and even car spaces. This can be a good way to diversify your portfolio and create tax benefits. These properties often show higher net incomes then residential properties with rent often covering total outgoings. Commercial leases of years rather then months typically offer more security and can business success can enhance your property value. Make sure you monitor the costs of maintenance and choose a continually desirable location. Corporate tenants such as government departments are less likely to stop paying rent.