Showing posts with label Capital gain. Show all posts

Friday, October 29, 2010

Smart Guide to Investment Property

Image by cycomer via Flickr

Smart Guide to Investment Property

Buying a small apartment to rent out can be a good way to accumulate funds so you can eventually buy your own place, in an area where you want to live.
What you'll learn in this step: Sensible investments in property residential or non-residential have many benefits, including capital growth.
Property has been a popular route to wealth for many Australians for many years.
Buying their own home is often the first investment many people make; purchasing another property may well be the second even before shares and other assets.
But your first investment in property neednt be your home.
Indeed, buying a small apartment to rent out can be a good way to accumulate funds so you can eventually buy your own place, in an area where you want to live.
Increasing numbers of young Australians are choosing this route, buying in one suburb while renting in a more desirable and expensive area or living at home for a while longer.
Still others are diversifying into non-residential property via property trusts and syndicates.
Sensible investments in property have many attractions.
Property can be less volatile than shares though not always and it tends to be regarded as a safe haven when other assets are declining in value.
It has the potential to generate capital growth (an increase in the value of your asset) as well as rental income.
Then theres the tax advantages associated with negative gearing (more about that later).
However, as with any investment, there are no guarantees.
Property prices go down, as well as up, and sometimes tenants are hard to find especially good ones who pay on time and take care of your investment.
Investors need to have a keen awareness of the interest rate environment how higher rates might affect their expected net return and the market for their property should they wish to sell.
They also need to make sure the return or yield from their property stands up against the return they might have achieved had they invested in shares, for example.
Of course, you dont have to make a direct investment in property.
Pooling your funds with other investors in managed funds with a property focus, listed property trusts or property syndicates provides exposure to a broader range of property including commercial, industrial and retail as well as residential often with a smaller investment required.
Many financial advisers would argue that too many Australians let direct investment in residential property dominate their portfolios.
In theory and this is far from reality for most people property should account for perhaps 10 per cent of an investment portfolio.

Concepts: investment, Smart Guide, loans, buying, funds, shares, font, savings, FINANCE, assets, Australians, property trusts, syndicates, rent, portfolios.

Monday, December 7, 2009

Property Investment Finance

Your Express Elevator to Real Estate Investing Success

The way in which you obtain and use property investment finance can make a sizeable impact on the rate at which your property portfolio grows.

I'm sure you've heard it said before but it is absolutely true that

The golden rule in real estate investing is other people's money (OPM).

This is the most important lesson you can learn!

Yes it's true, the golden rule in real estate investing is other people's money.

Use Other peoples Money

What this means is that whenever you are buying an investment property you should be aiming to pay as little as possible from out of your pocket, and obtain real estate investment finance for as much of the purchase price as you can. This is a vital factor in real estate investment property purchasing.

"I'd Rather not have any Debt"

"I have enough money, I'd rather pay cash."

OR
"I'd rather not have any debt."

This is not the way to build your property empire.

Even if you have $100,000 sitting in the bank right now, you could go and buy one real estate investment property but with the system that I am going to show you, you will be able to acquire multiple properties and reap the harvest of exponential capital gains and increasing rents for many years to come!

Gain Leverage by Using Real Estate Investment Finance

Return from
Property Investment Finance
To
Real Estate Investment Financing

Or To the Home Page
Freedom Steps With Property Investing

Monday, November 9, 2009

Real Estate Investment Analysis, decideing if a property is a good investment.

Image by epanto via Flickr

Real Estate Investment Analysis

Deciding if a property is a good investment

Real Estate Investment Analysis allows you to quickly avaluate and compare several potential investment properties and decide which one is for you. It will help you decide if a particular property is the right investment for you.

Using figures you can easily find you can quickly determine the financial plusses and minuses related to a partilcular piece of property.

Real Estate Investment Analysis is firstly understanding the income and expenditure related to a particular investment property.

INCOME: Rental income is generally the first and only income stream most investors consider for an investment property. However in addition to the rental income you gain from an investment property your situation may warrant considering the capital gains as income.

I believe it's better not to sell...
Hint: When you want cash, consider refinancing your real estate investments - see RETIRING USING YOUR GROWING PROPERTY INVESTMENT EQUITY BASE and if you keep your real estate investment properties you are not selling your retirement plans. You will need to consult an accountant to find the details of how you can declare capital gains as income but the general principles are out lined in this article: MAKE THE MOVE FROM HOBBY TO PROFESSIONAL INVESTOR

EXPENSES: There are two general types of costs (EXPENSES) associated with owning an investment property: interest costs and holding costs.

Income - Rental Return

The first thing you need to understand about rental return on an investment property is that verbal estimates by real estate sales people can be very misleading. That being said the way to determine a better idea of the real potential rentl return that a property might bring is to find out what similar prperties are renting for in the same area.

How to Calculate Rental Return

Rental return is calculated as a ratio against buying price. A rule of thumb calculation for rental return that many real estate imvestors use as a quick comparison is as follows:





Gross Annual Rent /
 Total Purchase Price 

expressed as a percentage

For more detail on calculating rental return, see How to Calculate Rental Return On a Real Estate Investment
For example if you purchased a rental property for $300,000 and were renting it out for $300 per week then your rental return would be calculated as follows:






(300 * 52) = $15,600 /
 $300,000 

(times 100 to express as a percentage) = 5.2%

I have found that if the resulting figure is in the vicinity of 6% or over you are in good shape. In the example above the rental return is a little on the low side but not by very much, so if other factors are positive there is a good chance that you will soon be getting above 6% just because of the normal increases in the rent you can acheive for this property.

For example just say that the next year the rent goes up by 15% then you are receiving $345 per week. In which case your return would be 6%. From that point on you are in a very healthy financial position with this property.




(345 * 52) = $17,940 /
 $300,000 

(times 100 to express as a percentage) = 6%

Expenses

In terms of analysing a real estate investment a percentage of purchase or advertised price as a factor to get a ball park figure for how much it will cost to own and run that property. The first thing to do is determine the interest cost per year by multiplying the advertised price by the interest rate you would be paying.

Then find the estimated running costs by multiplying the annual rent received by an expense factor, (you may need to ask your agent or another knowledgeable investor for what applies in your local area.

Real Estate Investment Analysis Example

An example of how real estate investment analysis gives you useable decision making data will make this much clearer:

See this page for a fuller example:

Real Estate Investment Analysis Example

Return from Real Estate Investment Analysis
To Real Estate Investment Methods Page
Or go to Freedom Steps With Property Investing

Monday, October 12, 2009

Property Selection - The Vital Component in Your Investing Tool Kit

Image by Getty Images via Daylife

Property Selection is
The Vital Component in
Your Investing Tool Kit

Property selection, Choosing the right type of property and the right location for your investment properties will make an enormous difference to your ongoing success.

This can make a huge difference...

Here is a example of just how much difference effective selection can make.

Let's say that you were considering two properties of similar size and features. Both were townhouses with two bedrooms, two bathrooms and a one car garage.

However Property A is new, the purchase price is $330,000 and it will rent for only $280, giving you a rental return of 4.4%. ($280 times 52weeks divided by $330,000 as a percentage.)

The Ideal Type of Investment Property

The ideal type of investment property has these characteristics:

Buy new investment property
Priced at the median price for the area
Is in demand with tenants
Has potential for future growth

Buy new investment property

There are a number of good reasons to focus your purchasing of investment properties on new properties.

Higher depreciation allowance to deduct from your tax bill.
Lower maintenance cost and therefore lower overall cost of ownership.

Median Priced Property

Buy property that is priced at or near the median price for the area.

The reason for this is simple. The property you want to offer for rental, especially when you are just starting out, is property that is closest to the most in demand type of property in any area.

This will ensure two things, that you always have a supply of ready and willing tenants to rent your property. (This is a very important part of your investment property business.)

Secondly, if your unit or townhouse is in demand then the value of your investment property will rise. This is perhaps the most important part of your investment business.

We've only covered two reasons so far.

Read on to discover why it is so important for you to become knowledgeable at effective property selection.

Buy a Property that is in Demand with Tenants

We have already touched on the importance of this above. Here are some other considerations to take into account.

A property in a better area will attract a better type of tenant and that will ultimately lead to less problems both with property maintenance and perhaps even collection of rent due and avoiding a default on rent.

Generally well located median priced property will prove to be your best bet for long term capital growth and rentability. After all the real money to be made in real estate is not by buying a property and reselling it a short time later for a small profit.

No the the real money to be made in property is to buy and hold as many well selected pieces of investment real estate as you can for as long as you can. In fact if you maintain a philosophy of just not selling this will in time provide you with a continually growing rent stream as well as a rapidly increasing equity base.

Return From Property Selection
To Freedom Steps With Property Investing

Steps to Freedom

Friday, October 29, 2010