Financial Success Formula: Master Property Investing Basics To Create Wealth – Part Three

September 9, 2013 Sam Saggers

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Putting it all together

Now that we’ve covered the basics of both market drivers and finances, let’s dig a bit deeper to see how we’re going to put that knowledge into action.

In part one of this series we discussed marketplace drivers. Let’s see how we can spot these drivers in a marketplace:

  • Infrastructure
    • What to look for: Look for indications that money has been earmarked for improvements and upgrades in basic structures of an area, such as hospital expansions, road construction, bridge improvements, airport expansions, new shopping centres, etc.
    • Where to look: News outlets, council minutes/announcements, even legislation
  • Supply and demand
    • What to look for: High vacancy rates means that the supply in the area is plentiful. Find areas where the vacancy rates are low – your best bet for higher yields is in these locations.
    • Where to look: Property managers are a great resource as are market data suppliers such as RPData or Todd Heron White.
  • Population
    • What to look for: A growing metropolis is a good indicator of growth in a region. Look for an increase above the average rate of growth that can be attributed to natural growth – a.k.a. (births/deaths).
    • Where to look: The ABS has a large number of growth statistics, including growth predictions for the region.
  • Demographics
    • What to look for: Family types e.g. singles, couples, with/without children, employment, blue collar and/or white collar professionals, average age of population, etc.
    • Where to look: Again, the ABS has a great number of detailed statistics, including historical data.
  • Economics
    • What to look for: Number and size of employers, including and in addition to schools, universities, hospitals and capabilities of the infrastructure to handle growth projections (including housing supply).
    • Where to look: News outlets, property magazines, government websites, reporting agencies such as RPData or Residex.
  • Yield variation
    • What to look for: Search for areas experiencing a one to two percent growth from their last five-year rental yield average. Remember that growth follows yields!
    • Where to look: Online real estate websites, property magazines, data sites such as RPData , Residex or even valuation companies such as Herron Todd White.

What is a structure and which one should I choose?

There are three ways to own property as a property investor:

  1. You can own the property in your own name.
  2. You can own it in a company or trust structure – including a combination of a number of different types of trust and company structures.
  3. You can own it through your superfund.

As an individual

Benefits

Tax deductions

When you purchase property as individual, placing it in your own name, you can easily get a personal tax deduction that you can use (via the PAYG variation (221D)) to offset the costs of owning the investment property.

Finance

It’s much easier to borrow money in your own name.

Structure

Simple to create and inexpensive to manage.

Disadvantages

Asset protection

If you have a problem and someone wants to take your assets, your personal name is very open to attack.

Taxation

Possible capital gains tax would eat away at any gains.

In a company or trust structure

Benefits

Asset protection
Preservation of family home by leaving out family members as possible litigants to any lawsuit against the company.

Taxation
Tax rate is capped at 30%

Disadvantages

Taxation
Unless you use specialised trusts, you cannot use negative gearing or tax deductions.

Finance
Difficult to obtain financing.

Structure
Costly to set up and maintain – cost prohibitive should you choose to own many properties.

In a superfund

Benefits

Taxation
Low tax rate (15% on average) on contributions.
Over the age of 60 – zero capital gains tax!
Before age of 60 – capital gains tax as low as 10%!

Structure
Assets are protected from creditors and insolvency.

Disadvantages
Money is tied up until the individual is of retirement/eligibility age.

NOTE: If you want to boost your returns and use gearing, your property must be part of a self-managed super fund.

We hope you have enjoyed this series on property investing. If you missed our previous articles, click here for part one and here for part two.

To find out even more than we were able to cover in our short series, grab a friend or family member and come along to one of our Property Investor Nights. They’re free, but don’t let the lack of a fee deceive you – they’re packed with lots of information, including how you can pay off your home loan in as little as 6 years, how you can replace your income in 5 years and much, much more!

Don’t take our word for it, however. Click here to read some of our clients’ amazing success stories!

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