How to make a successful property investment

When it comes to helping us navigate all the things involved in making property investing successful, having a strategy that works is vital.

As there are many moving parts to grow your financial wealth through investing, charging ahead without a strategy to guide you, is like trying to bake a cake without a recipe. So where can we start?

A successful strategy can be broken down into key steps: 

1. Buy land for capital growth
2. Optimise your income
3. Maximise your tax benefits
4. Finance to build wealth
5. Aim for affordability
6. Make time work for you

1. Buy land for capital growth

Land is a commodity, it has a limited supply, even more so in areas with high demand. Building values do go up, mostly only due to inflation and the labour costs to replace it. It is the land that is irreplaceable and adds capital growth.

So, with this step, check your investment has the highest possible proportion of land content in a location where supply and demand will ensure capital growth.

‘Supply’ relates to how much available land content there is close to areas in demand. ‘Demand’ is determined by population growth, employment opportunities, and lifestyle.

2. Optimise your income

In order to make an investment work without straining or draining your cash flow, the income it generates needs to be optimised to offset all of your outlays. Not just paying the cost of the loan, but also maintenance, rates, fees, and other costs.

This step involves some simple math, which is the sum of all costs less then the sum of all income, if so, the investment passes this step.

3. Maximise your tax benefits

Tax in property investing is a powerful way to be more effective with cash flow, especially when you utilise depreciation fully. The tax deductions you can claim from depreciation can even be applied immediately to receive it in your monthly salary or wages. Also, note that newer properties offer a lot more deductions then old properties.

You will want to talk with your accountant to help with this step, however, you will be more equipped to know what you need to have to maximise the benefits.

4. Finance to build wealth

When buying an investment property, let’s say you put a deposit down of 20%, which means the property only needs to increase in value by 20% for you to make a 100% return on your investment. Without using finance, your investment would have to double in value to get the same return.

This step comes down to reviewing equity in a property to see if it can be used to leverage more effectively into growing your portfolio.

When getting a loan, don’t let the bank link it to your own home, use a professional broker who specialises in investment loans, use an interest-only loan as long as possible and lock in interest rates to manage your cash flow.

5. Aim for affordability

Building an investment portfolio that focuses on the affordability of the biggest portion of the rental market will help reduce the potential risk of your investment not being rented, as you will have the greatest number of people in that range.

To get an estimate for affordability, take the average total weekly earnings (available from the Australian Bureau of Statistics) of the location you are looking at property in and take 30 – 35% of that value. That will give you the estimated rental cost of the properties you should target.

6. Make time work for you

Buying and selling property is very expensive when you add up all the stamp duty, bank and legal fees, taxes, agent commissions, and other costs involved. This is often overlooked when people look to flip properties or even just sell after a couple of years. The real wealth is built in a less exciting way, by being patient, not reacting to short term markets and letting the asset grow.

So, this step is all about discipline, patience, and commitment. Not reacting to short term news and markets, if you have stuck to the strategy the investment will pay for itself and it is just a matter of holding onto it and letting it grow.

If you want to start taking action now with professionals to guide you personally every step of the process click here to take the next step.