It may be necessary to consider property investment based on investment criteria and not confuse this with the property that your children may be able to use.

Often, the property you intend for your children to use may not be suitable when the time comes as there may be alternative accomodation or more appropriate, suitable and convenient accomodation at that time.

• the appropriate time to allocate or park funds in an Australian property . This can be parking funds of about 30% of the value of the property and the balance funded by the bank ;
• evaluating that you may derive break even cash flow , or acceptable cash outflow to hold the property , after receipt of rent income deducting all expenses ; 
• possible capital growth potential that would enhance your equity in the property ;
• refinancing your property at the appropriate time to release funds for your children''s eduction expenses .

We do assist our clients in their investment review by providing the property investment analysis illustrating the different scenarios. Should you wish to have information on this, please send us an email : info@yonginvest.com

Investors mitigate this risk to an extent by :

1. buying from reputable developers who have record of success, quality and reliability
2. buying in positions with potential for strong capital growth. Such as “lack of land” , waterfront, attractive lifestyle and amenties.
3. buying properties that attract an affluent market for continuing high rents and quality tenants.

“Off-the-plan” purchase is made by an investor for a purpose, the following are some of the reasons :

1. the investor has a plan to own a number of investment properties in a future time line. The plan may be to generate capital growth and passive income over time from these properties. For example, the investor may need to increase one more property in his/her portfolio in 24 months time. The investor would then contract into an “off-the-plan” property now to settle in 24 months time. The alternative is to wait till 24 months and go to the market at that time to purchase a property which may be priced higher. The investor may understand that buying “off-the-plan” now provides certain advantages such as “better price” and “a more powerful choice”.
2. “better price” – often developers price their “off-the-plan” sales benchmarked to prices competitive at the time of release of the “off-the-plan” sales, as they desire to reach determined target sales to propagate funding and market support for the project. However, with annual rising construction and labour cost and inflation, property tends to be more costly in future. The “off-the-plan” price may have risen at the time of completion.
3. “a more powerful choice” – the development that is selling “off-the-plan” now, especially in the initial release period may have the best choices for floor plans, and aspects which may be sold out at completion. For the investors, the best entry price or affordability range may be obtained at this time and not later on.
4. Be ahead. For example the property settles in 24 months time. The investor has done his/her Investment Analysis. He/ she ascertains that with 90% funding from the bank and tax savings, $200 a week is required to hold the property. The investor is now 2 years ahead of settlement and starts to save $200 a week now for the property. When the investor obtains title to the property in 24 months time he/ she has a 2 year headstart of personal savings to fund the investment. The investor creates a 24 months working capital / safety buffer.
5. Using existing equity. Investors often have their jobs or business and at the same time invest in residential properties. While they work hard on their business and job, they engage their equity (in properties they already own) to also work hard for them. Investors could extract funds or finance from their existing property to place a deposit to secure an “off-the-plan” property. They created a new property from their equity.

“The return of an investment divided into 72 will determine how long the investment will take to double in value.” Albert Einstein. This is now the famous Rule of 72.

The often quoted capital growth of properties in Australian capital cities is 7% per annum. Using the Rule of 72: 72 divided by 7 = 10years. Indeed statistics over 50 years showed that properties in Australian capital cities double every 7 to 10 years.

Say, an investor would continue to invest in properties up to 65 years old. the investor is now 45 years old. He/ she therefore has 20 years to invest. We estimate from the above that properties double in value every 7 to 10 years. Hence the investor with 20 years of investment time has 2 property cycles to use to his advantage (20 years divide by 10 years).

Lets look at a simplistic arithmetic without factoring in present values, compounding etc). If you put in a deposit of $60,000 to invest in a $300,000 property , borrowing approx 80% from the bank. And the property doubles to $600,000 in ten years time – you have generated capital growth or wealth of $540,000( being $600,000 less $60,000) over ten years. This is done with $60,000 initial outlay plus regular instalments generating $54,000 a year in increased wealth before discounting for inflation etc. If you have not started , you may not have any equity to look at in Year 10.

Start now. And a beautiful quote :

“took 22 years of slow and steady building – block by block – before the world received a gift called The Taj Mahal. And all wonders are like that – they take time. Lots of hard work. And time. We live in a miracle drug world. We all want what we want – and we want it fast. But great companies/relationships/lives are built over time. Small daily steps, over years, lead to stunning results.” — Robin Sharma

Property investment is a business. In this respect therefore it is efficient to do interest-only repayments. the full interest is tax deductible and result in tax savings for you.

In a principal-plus interest repayment, the principal portion is not tax deductible. Also the cash outflow is higher which has an opportunity cost when it reduces your ability to engage cash elsewhere.

Negative gearing is a strategy that investors use . There are outcomes they want, such as :

1. reduce tax from the interest expense generated from the level of loan
2. leverage the bank and use cash for other opportunities.

If the rental return is say 5% per year. Loan interest is say 7% p.a. You may be negative when you borrow more than 80%. However when you borrow 60%, you could be positive in cash flow.

Do not consider the absolute sum. Consider your affordability per week. If your affordability is $150 per week, review the best prime properties that require $150 per week cash flow from you to hold the property. remember, three parties support your mortgage : the Tenant, the Australian Tax Office and You.

Buy the best that you can afford because it is a business, a vehicle. Like a business you buy so that the investment property will work for you. You buy with the objective of capital growth and strong rental return.

Investors buy Well. Often they do not sell. They have the properties work for them , generating income and capital growth. They may refinace the equity to live off the propety when their active income ceases. 

Affordabilty is the key. Also, they may create a “buffer” or working capital from the existing portfolio by refinance for a line of credit. The credit line may be created to safely support a number of years of repayments. 

Astute and prudent investors have a plan and a purpose.

They know their numbers to support their purchase.
These may be :

1. affordability based on the cash flow from the properties
2. leverage the equity to create new properties without further cash flow
3. having a time line to generate a certain number of properties to produce a level of passive income.

Interestingly, you cannot afford not to invest. Our active income would one day cease. Investments generate passive income to substitute the active income.

If you are saving say $300 a week in the bank for “raining days”, you could determine to allocate $150 a week into an investment property and continue to save $150 in the bank. Invest within your affordability.

The property is a vehicle. The focus should not be the property.

It should be the Vehicle. Fashion the Vehicle from your use of money. In a money strategy, ask some of the questions :

1. How much can I afford per week in cash flow to hold the property?
2. How much can I borrow?
3. Do I have existing equity that is “lazy” ? Can I leverage on existing equity to have it working for me?
4. Can I create a property without using new cash?
5. What tax saings can I take advantage of, rather than mindlessly paying tax
6. Wealth is Value multiply by Leverage. How do I find Value and Leverage? ( We assist you with research).
7. Do I know my numbers. (We assist you with Investment Analysis Illustrations to identify your key numbers).

It is also a game that you can play. Three parties pay for your investment property ; The Tenant by paying rent. The Australian Tax Office by tax refunds or savings for you. Yourself committing to save an affordable amount each week.

Your investment property earns income for you. All direct expenses paid for in cash plus “non cash flow depreciation” are considered expenses by the Australian Tax office and can be set off against rental and other income.

Imagine, this business can be created by you to work for you. After you set it up, it generates passive income for you. You have a business working for you. You may be working in a career or another business. However you have in addition, the investment property now working for you:

1. it produces rental income for you,
2. it has expenses that you can use to deduct against your other income to reduce your overall tax expense, hence not mindlessly paying the maximum tax,
3. it increases your wealth typically at 12% per annum ( rental return typically say 5% p.a plus capital growth typically say 7% p.a on the basis that the property doubles in value in 10 years – Australian Bureau of Statistics information over the last 40 years showed that median prices of Australian capital cities properties double in value every 7 to 10 years),
4. commencing with an affordable investment property, you begin to build equity in the property as it increases in value over time. You have created more wealth,
5. You have money working for you.