Getting Started in Property Investment For Dummies - Australia

Bruce Brammall, Eric Tyson, Robert S. Griswold

• Publisher: For Dummies
• Year: 2013
• Print ISBN: 9781118396742
• eBook ISBN: 9781118396766
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Propiedad inmobiliaria

Earn extra money investing in Australian property? Easy.

Whether you want to prepare for retirement or just make a little extra money on the side, Getting Started in Property Investing For Dummies, Australian Edition, is the perfect way to take advantage of one of the most reliable and profitable investment vehicles in history. From weighing up your investing and financing options to managing the ongoing costs of real estate and building a long-term portfolio, this handy guide gives you the practical help and smart advice you need to get started. Ideal for entry-level investors who want to add brick-and-mortar assets to their investment portfolios, this book covers where to find capital, how to finance purchases and get the best mortgage terms, how to measure the value of properties, basic landlording guidance, and more.

• Offers practical property investing guidance for first-timers
• Completely up-to-date with the latest information on the current state of Australian real estate
• Bruce Brammall writes on property investing, personal finance and tax matters for the Herald Sun, the Eureka Report and News Limited's Your Money, and is the principal advisor and mortgage broker with Castellan Financial Consulting and Castellan Lending

If you want to get started in real estate investing—as a full-time endeavor or just an addition to your current investment portfolio— Getting Started in Property Investing For Dummies, Australian Edition has you covered.

Part I

Understanding Real Estate as an Investment

Glenn Lumsden

‘. . . and if the real estate market ever nosedives, you can always just live off the gingerbread.’

In this part . . .

Real estate is just one of many available investment options, so, in this part, we compare real estate investing with alternatives you may consider and look at how to fit real estate into your overall financial plans.

Chapter 1

Stacking Up Real Estate Against Other Investments

In This Chapter

Getting started

Contrasting real estate with other investment options

Deciding whether real estate works for you

Arranging your overall financial plans to include real estate

Watching out for statistics

The vast array of choices available to Australians is both a privilege and a burden. Go to the supermarket in search of something as simple as bread and you’ll know exactly what we mean. Choice is even more widespread when it comes to the world of investment. You have thousands of choices among managed funds, shares, bonds . . . the list is seemingly endless.

Allow us to help you through a portion of the cluttered world of investment. In this chapter, we start to explain how, why, when and where to invest successfully in real estate. And, even though we’re advocates for investing in real estate, we also take you through some issues to weigh up if you’re wondering whether you have what it takes to make money and be comfortable investing in real estate. We share our experiences, insights and thoughts on the long-term strategy for building wealth through real estate that, at its core, is a fundamentally simple investment strategy that virtually everyone with a long-term time frame and determination can understand and achieve.

Getting Yourself Motivated

It’s never too early or too late to formulate your own plan into a comprehensive wealth-building strategy. For many, such a strategy can help with the challenges of funding private school education for children and ensuring a comfortable retirement. The stock market and other diversified investments are essential to a proper asset-allocation and diversification strategy.

The challenge involved with real estate is that it takes some real planning to get started. Without doubt, calling a stockbroker and purchasing a few shares in your favourite company is a lot easier than purchasing your first rental property. But buying good property is more time-consuming than difficult. You just need a financial and real estate investment plan, a lot of patience and the willingness to do some research and legwork, and you’re on your way to building your own real estate empire!

The vast majority of people who don’t make money in real estate make easily avoidable mistakes, which we help you steer clear of.

In this chapter, we give you some information that can help you decide whether you have what it takes to make money and be comfortable with investing in real estate. Unlike almost any other type of investment, real estate is hands-on. When you own shares in a company, you can’t personally dictate how that company operates, or influence how profitable it is. Direct investment in property is the opposite. You’re in control. Major decisions are in your hands. You can determine how to lift your income and how to raise your profits (or capital gains or equity). We compare real estate investments with other investments you may be considering. We provide questions you need to ask yourself before making decisions. And, finally, we offer guidance on how property can fit into your overall personal financial plans.

As Bruce approached the end of his 20s, his employment as a business journalist gave him the scope to investigate how the rich made their money. He found that he could usually narrow down the stories behind a person’s wealth to a few themes — inventing something, owning and running a business, or successfully investing in other businesses. These businesspeople and investors covered a variety of industries and their business successes had no obvious common link. However, a non-business link soon emerged. Most of these people seemed to have made substantial sums of money from property investment.

Comparing Real Estate with Other Investments

You’ve surely heard about or even considered many different investments over the years. To help you appreciate and understand the unique attributes of real estate, we compare real estate with other wealth-building investments like shares and running your own business, using key economic attributes.

Returns

Clearly, a major reason many people invest in real estate is for the healthy total returns (which can include both ongoing income and the capital appreciation of the property). Real estate generates robust long-term returns because, like shares and small business, it’s an ownership investment. By that, we mean that real estate is an asset that has the ability to produce income and capital growth.

Our research and experience suggest that total real estate investment returns are comparable to those from shares (about 7 to 10 per cent annually, measured over decades). (In Chapter 2, we discuss real estate investment trusts (REITs), which are publicly traded companies that invest in commercial real estate such as apartment buildings, office complexes, shopping centres and so on. These have gone through considerable periods of growth, with rates of greater than 10 per cent growth, though returns since the onset of the global financial crisis (GFC) have been sorely tested.)

And you can earn returns better than 10 per cent per year if you select excellent properties in the best areas and manage them well. That said, investing in real estate is accompanied by the following:

Few knockout wins: Your returns from real estate probably won’t approach the knockout wins that are sometimes achieved by business entrepreneurs or by picking penny-dreadful shares on the stock market and doubling your capital in a month. Real estate profits take time — profits are earned through hard work, judgement and research.

Ups and downs: You’re not going to earn a 7 to 10 per cent return every year. Although you have the potential for significant profits, owning real estate isn’t like owning a licence to print money. Like stocks and other types of ownership investments, real estate goes through down as well as up periods. Most people make money in real estate by holding property over many years.

High transaction costs: If you buy a property and then want out a year or two later, you may find that, even though the property has appreciated in value, much (if not all) of your profit has been wiped away by the high transaction costs. Typically, the costs of buying and selling — which include stamp duty, real estate agent commissions, loan fees, property taxes and other settlement costs — amount to about 10 per cent of the purchase (or selling) price of a property. So, although your property might appreciate 10 per cent in value in a short time, costs and taxes can mean you may have had a greater return if you’d stashed your money in a bank account for that period.

Tax implications: Last, but not least, when you make a profit on your real estate investment, the Australian Taxation Office (ATO) is waiting with open hands for their share. So, throughout this book, we highlight ways to improve your after-tax returns.

Risk

Real estate doesn’t always rise in value. That said, market values for real estate don’t usually suffer from as much volatility as share prices do. The excitement in global share markets leading up to November 2007 saw many countries’ stock markets double, or more, in value from 2003. Australia’s stock market rose from around 2,700 points to a high above 6,800 points. Then the global debt bubble burst, which panicked investors globally and led to the GFC. Australia’s market fell all the way to below 3,100 points — back almost to where its run had started. You’re far less likely to see that kind of roller-coaster experience with real estate market values. The reason is land — even if the buil...

Table of contents

• Cover
• Title Page
• Table of Contents
• Introduction
• Part I: Understanding Real Estate as an Investment
• Part II: Financing: Raising Capital and Sourcing Loans
• Part III: Finding and Operating Properties
• Part IV: The Part of Tens
• About the Authors