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The use of property as an investment vehicle is viewed by many
Australians as the 'Holy Grail' of a personal investment
strategy, yet many people neglect to follow the basic rules
that should govern any investment decision.
So what are these rules? And how do they apply to property
investment?
1) Leave your emotions at the door - because of the tangible
nature of property it often has the ability to evoke strong
emotions within investors.
These emotions can have the effect of clouding the ability to
determine the true investment value of the property and can
lead to an impulse decision. Decisions made in this manner
often do not have the desired outcome.
You should always be looking to buy an investment based on the
numbers, and the numbers alone. Too many mum & dad investors
get caught up in what colour the carpets are, the type of
curtains in the kitchen etc.
When buying an investment property it is imperative to base your
decision purely on the numbers. If the numbers work, then you
have yourself a deal.
2) Do your research - Would you purchase shares on the stock
exchange (valued in the 100's of thousands) without knowing the
companies past performance, future opportunities and income
earning potential? The answer is of course - No. So before
buying an investment property do some thorough research, here
are a few things to look our for:
Property growth values in your region. (these can be obtained
easily through the valuer-generals office in your state)
Potential to easily increase the value of your investment
(e.g. buy the worst home in the best street and give it a
splash of paint, weed the garden - make sure that this process
doesn't cost more than the expected increase in value).
Look at rental values in the area you are looking to
purchase (you can get a good feel for this by looking at the
"for rent" section of your local newspaper.
Its important to keep in mind that you may not be able to keep
your property rented out for the entire year - so when working
out the annual return make sure you account for a month or so
of no income.
What are the costs associated with the property? E.g.
council rates, strata-title levies, water, other costs
(e.g. annual maintenance)
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3) Determine how you are going to purchase the investment
Will the money come from savings or will you have to borrow?
If so, how much will you have to borrow? How much will the
repayments be? You should always want to maximise your investment
debt and reduce your personal debt first!
Why ? Because your getting good tax benefits by having the
investment debt, whereas you are not benefiting at all from
your personal debt. I also advise you to keep your investment
debt on an interest only loan until you have reduced all of
your personal debt.
Once you've followed these basic rules, you will be in a much
better position to make a decision about your investment
property and you'll have a greater chance of getting the results
you desire.
In future reports I'll go into property investment on a much
more detailed basis and include information on things such as
loan structures for property investment, building equity in
your home and long term strategies for building your property
empire...
If You would like to be shown how to structure your investment
loans, how much you can borrow and what your repayments will be
on your investment debt, simply send me an email asking for a No Obligation FREE Quote Now!
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