SUCCESSFUL
PROPERTY
INVESTING
2023 EDITION
THE BASICS
TABLE OF
CONTENTS
05
Decide to be Wealthy….Today!
Chapter 1
13
Types of Properties
Chapter 2
22
Research
Chapter 3
25
Property Purchase Ownership
Chapter 4
29
Holding Properties in Trusts or
Company names
Chapter 5
32
Using a Buyers Agent
Chapter 6
36
Negotiating a Price
Chapter 7
40
How Real Estate Agents are Paid
Chapter 8
43
Exchange to Settlement
Chapter 9
pg
TABLE OF
CONTENTS
47
Saving for a Deposit
Chapter 10
52
Putting your Home at Risk
Chapter 11
59
Getting the Right Team
Chapter 12
62
Have Finances ready before
Investing
Chapter 13
65
Finding the Right Tenants
Chapter 14
69
Have Safety Nets in Place
Chapter 15
74
Getting your Refunds early…and
other “Perks”
Chapter 16
79
Shares Vs Property
Chapter 17
82
Getting Started
Chapter 18
pg
I have deliberately kept the contents of this book simple, for it is in the basics
that many investors get derailed, and therefore, burnt. The intent of this book is
to give you answers to the more commonly asked questions of investors,
novice and sophisticated, when they start building their portfolio.
In investing, true success is derived by going about things in a structured and
planned manner, thus avoiding the pitfalls. The best way to obtain a different
result is to DO things differently. Eighty percent of investors who purchase
property, end up selling within the first eighteen months of ownership because
they have not got their foundation right.
The foundation starts with a mindset; you need to have the right mindset to
invest successfully. Society has programmed us too rigidly to accumulate
wealth effectively, unless we change the way we do things. This is the reason
why, in the very first chapter, I talk about deciding to be wealthy.
The next thing you need for your foundation is to know the basics. Know at
least some of the rules, and surround yourself with a successful team that
specialises in property, and are actually doing it themselves. Working with this
team will save you time, money, and help you reach your destination faster.
An exit strategy is not dealt with in this book, as there are many ways to derive
your profits. This depends on the strategy that you use, and your mindset. In
the forthcoming books, I will discuss buying strategies, financing strategies, and
then the holy grail of property investing - retirement (exit strategies).
With this, I wish you successful investing.
Victor Kumar
Director and Founder
Right Property Group
Congratulations on your decision to
download this book, the first of a series
in successful property investment.
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10 Steps on
the Road to
Wealth
C H A P T E R 1
When I migrated to Australia in 1997, I faced the monumental
task of getting somewhere in life. Therefore, I started studying
successful people around me with the purpose of discovering
what their secrets were in wealth and success.
The best piece of advice I got was from reading one of Robert
Kiyosaki’s books, “Rich Dad, Poor Dad”, where he stated that in
order to get a different result, you need to DO something
different.
This started me on the quest for financial freedom and personal
development. Over the years, as I became more and more
successful, I could directly attribute my success to the books
that I read, the seminars I attended, and the people I surrounded
myself with, from whom, I built my inspiration.
This is my attempt to provide you with a step-by-step guide on
how to achieve success, based on the multitudes of seminars
and courses that I’ve attended, and books that I have read. As
well as this, I will share things I’ve learned from my own life
experience, and the results I have been able to achieve for my
clients over the years.
These are decisions that I make consciously every day, and I am
certain they will inspire and aid you to become wealthy as well.
Based on my experiences, the definition of wealth varies from
person to person, depending on your beliefs, as well as your
emotional and spiritual fingerprint.
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6
10 STEPS TO WEALTH
Decide to be Wealthy…today!
STEP 1
Most people do not become wealthy based on the simple fact that
they decide fairly early in life NOT to become wealthy. They
believe that wealth is for the greedy and the lucky, and therefore,
they just do not have the attributes to be wealthy.
The fact is that it is very easy to be wealthy, and you don’t have to
be greedy or lucky to be wealthy. What you do need is the right
frame of mind, and the conscious decision to start doing activities
that will get you closer to wealth TODAY, (not “I’ll start from
tomorrow”). Your decision must follow immediate action.
So, make a decision to be wealthy, even if you are broke and
penniless today.
The difference between being poor and being broke is that
being broke is TEMPORARY, whereas, being poor is a state of
mind.
Decide what kind of money problems
you want
STEP 2
There are really two kinds of money problems you can decide to
have; not enough money or too much money. I know which
problem I’d rather have!
In order to be wealthy, you must first decide how you are going to
utilise the excess cash coming your way to create more money.
Most people foolishly spend the excess funds that they receive on
unnecessary purchases. This is because they have not made a
decision to use the excess cash that they have to make more
money. What have you done with your tax refunds this year? Are
you using it to make money?
Think abundance, think of money being easily available to make
more money. Think of HOW you are going to invest this extra
money.
7
Know where you are today
STEP 3
You need to know exactly where you are financially today, before
you can decide where you want to be financially within a year, two
years or even ten years, and how you are going to get there!
It’s like having a GPS in your car, or using Maps on your phone. You
may know where you want to go,
but FIRST, you need to identify where you are now to be able to
plot the easiest route to your destination, or even the scenic route.
Remember, it is YOU who is driving!
Write your plan and follow it step by step
STEP 4
Now that you have identified your destination and your starting
point, you need to plan your trip. Set up milestones, so that the
trip is not as daunting, and you will be able to see the results.
Plan on:
Getting your money to work for you 24 hours a day.
Getting into good debt, the type that makes you money.
Convert your personal debt into investment debt.
Investing in well-researched real estate aligned with your goals.
Structuring your finances to protect your home, and use the tenants
and tax-man’s money to help pay off your personal debt.
Setting up a good safety net, so that your debts are covered if
anything were to happen to you.
Reinvesting your profits, and rebalancing your portfolio.
Reviewing your plan regularly.
Reward yourself
STEP 5
It’s not all about making money. You have to have fun along the
way, or otherwise, the trip will be boring and hard.
Plan to reward yourself each time you reach a milestone. After all,
you do deserve a pat on the back, and who can do this for you but
YOU! The reward itself does not have to be lavish: perhaps a
weekend away for you and your significant other, or maybe a quiet
time at the movies would be relaxing enough for you.
8
Source professionals who are smarter than you are, and practice
what they preach.
Get a team around you who will work with you to achieve your goal.
This will be an effective team because they will only make money if
you are successful, which is a powerful motivation in any language.
However, you must be open to pay for their advice and service.
Decide not to take advice from anyone else. They may mean well,
but do they have the runs on board to be able to advise you, or are
they merely giving you their (misguided) opinion?
Use time as an ally, and be patient
STEP 7
It requires time and patience to build a portfolio. It is not going to
happen overnight. Building wealth is not the same as working on a
job, where you get paid at the end of the week or fortnight for your
efforts. Investment is all about delayed gratification. Many people
become impatient, and sell their investments to “see how much they
have made”, and lose thousands in unrealised income in the process.
With an investment portfolio, you may not get paid for years. This is
all the more reason for you to be patient, and let time do it’s magic.
Over time, the right type of investments will invariably grow
substantially in value.
Remember your house? How much did you pay for it when you
bought it? How much is it worth now? How much do you expect it to
be, in say, 10 years time? The longer you hold your investments, the
more money you can earn from it.
I recommend that you remain focused on your long term goals.
There is a quote that I once read, by Donald Trump, which went like
this:
“Sometimes by losing a battle, you find a new way to win the war”
I guess the same could be true for investments. Use each setback as
a lesson to move forward, and learn from your mistakes. More
importantly, learn also from the mistakes of others who have already
done it.
Assemble a team of professionals around you
STEP 6
9
The magic of thinking big
STEP 8
Dream big, aim high. If you aim for the stars, even if you fail, at least
you would land on the moon.
Many people start small and stay small. What you need to do is to
get out of your comfort zone, stretch yourself so that you will start
achieving. As Jim Rohn once said:
“You don’t have to be great to get started, but you DO have to
get started to be great”
Don’t wait until “the market is right”, or “next year.” Start NOW. Take
the necessary steps to do something different. Dare to dream the
dream of being financially secure, of not having to worry about
holding down a job to survive.
Set your first goal to replace your income with passive investment
income. Then aim to double it. Do something different to what you
are doing now, and what the 95% of other mediocre people are
doing. By doing something different, you will achieve different
results.
Move forward…fast
STEP 9
Before you can move forward fast, you need to get rid of all your
excess baggage! Forget about what you did yesterday, or what
you could have done. If you want to be better financially tomorrow,
you need to tighten your activities today, and make a conscious
decision to take massive action and change your thinking.
Read inspirational books, or if you are not much of a reader, listen
to inspirational audios. With this, I am not referring to spiritual stuff,
but to items which the more successful people share freely with
others. Examples of these would be information on how they have
done it, or 'how to books'. Many are available for free on the web.
Use them to propel yourself forward, and to help keep a positive
mind-frame.
Decide to reach a certain milestone by a certain date, and do
everything that you can to reach your goal.
10
Choose your friends and partners wisely
STEP 10
If you look around you, your friends would probably be in the same
financial bracket as you are. We are all significantly influenced by
our environment, and constant interaction with a certain type of
people will produce a certain type of result for us.
Rub shoulders with successful people; choose to spend time with
quality people, and move out of your comfort zone.
11
Being wealthy is a frame of mind. You have
to decide to be wealthy, and remind yourself
along the way that you are ENTITLED to
be wealthy. Define what wealth means to
you, and pursue it relentlessly.
12
Types of
Properties
C H A P T E R 2
In my opinion, properties that are purchased should be divided
into two categories: the ones that put money in your pocket
(positive cash flow), and the ones that take money away from
you (negative cash flow). These can then further be subdivided
into the types of properties. However, before we move on to
describe the types of properties, we need to first define positive
and negative cash flow.
Positive cash flow is when there are surplus funds left after you
have paid all of your outgoings such as mortgage payments,
agent fees, rates etc. There are two ways a property can
generate positive cash flow. The first way is when your return,
after deducting depreciation and other tax deductions, is
combined with the net rent, producing a value that is above the
required costs of holding the property. We will discuss
depreciation in more detail later.
This depreciation method of attaining positive cash flow only
works when the title holder is still in the workforce and is paying
tax, and is therefore, limited to the amount of tax he pays each
financial year. The other way to achieve positive cash flow is to
have the rentals cover ALL expenses.
Essentially, you are looking at a net return of at least 5%
(assuming interest rates are below this amount, of course.) This
type of cash flow requires investment on a particular type of
property (which may be harder to find than a negative cash flow
generating property), and hence, the popularity of negative
cashflow properties.
Often investors try to “make” a property generate positive cash
flow by placing a larger deposit on the property. This is not a
smart way of leveraging on your money, as you are tying up your
money to the property, as these funds could have been better
utilised on several other properties.
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14
The secret of successful investing is to use
other people’s money (such as from the
bank) and limit the use of your own. If you
have used your own money, try to extract
that capital out as soon as possible, so that it
can be invested elsewhere. The less money
from your savings you use, the better. I call
this recycling your money or the
‘Duplication Process’.
15
Negative gearing is a term that is often used incorrectly as far as
property investment is concerned. The word gearing itself means
leverage, which involves using a lot of other people’s money,
while keeping the use of yours at a minimum. Since people often
buy properties generating negative cash flow, the use of the term
'negative gearing' has stuck.
Negative cash flow properties are investments in which the
outgoing payments are far higher than the incoming rentals, even
after you take your tax deductions into account. These are cases
where capital growth is likely to be far greater than the costs of
holding the property over the short term.
These type of properties should only be purchased after careful
research and portfolio evaluation, as people have often made
these purchases hoping for an increase in value, and also
because “it is the right thing to do.” More often than not, these
purchases are made because of a “gut feel”, and because Uncle
Jim or the real estate agent said it would go up in value.
Holding these properties may cost anywhere from a few dollars
to several hundred dollars a week, and therefore, reduce the
capability of the investor to invest further without compromising
on lifestyle. With this, many of these properties have to be sold
within a few years.
In conclusion, a negative cash flow generating property should
only be bought when the negative cash flow is minimal.
Remember, several negative cash flow generating properties will
add up, and cost you hundreds of dollars a week out of your hard
earned money. Essentially, you would still be working, and paying
for someone else to live in your property. Unless the overall
strategy is clear, this situation would definitely turn people off
investing!
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16
These are some common property types that one can invest in,
with each having its own advantages and disadvantages. I have
explained the most common ones below, but this list is by no
means exhaustive.
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HOUSES
UNITS
VACANT LAND
HOLIDAY/SERVICED
APARTMENTS
INDUSTRIAL UNITS
OFFICE BLOCKS
PROPERTY TYPES
17
ADVANTAGES DISADVANTAGES
Everyone needs
somewhere to live, and
if the rent is reasonable,
you will attract tenants
who are families, and
therefore not likely to
have a high turnover. If
selected correctly, this
type of property will
appreciate in value.
Furthermore, it is fairly
easy to rent out.
CAUTION
Houses usually
generate negative cash
flow. Also, if the
property is not located
in a high-growth area,
the capital growth may
not be adequate to
justify for this. Of
course, this is price and
rent dependant
Research well. The
calibre of the property
and location of the
suburb will determine
the quality of the
tenants, and the
number of vacancies
you have.
PROPERTY TYPE: RESIDENTIAL
HOUSES
ADVANTAGES
DISADVANTAGES
Units are ready to be
rented out, especially to
young people who have
just moved out of
home.
CAUTION
You are in direct
competition with the
rest of the landlords in
the same building, and
your ability to rent is
determined by how low
your rental is in
comparison to other
units within that block.
You are also governed
by the strata by-laws.
Unless there is a
SIGNIFICANT chance of
strong growth, buying
units with pools, gyms,
and elevators will often
lead to increased
holding costs.
UNITS
18
ADVANTAGES
DISADVANTAGES
The value of vacant land
may go up in value if
bought before
registration with the
land titles office as a
separate title, or during
the early stages of
development.
CAUTION
There is no tenant to
help contribute towards
the mortgage
payments.
You may not be able to
claim a tax deduction
for vacant land. For
more information speak
to your accountant.
PROPERTY TYPE: RESIDENTIAL
VACANT LAND
ADVANTAGES
DISADVANTAGES
The value of serviced
apartments may
appreciate substantially
in value. You are also
able to spend time
there, for free!
CAUTION
As rentals are seasonal,
the holding costs may
be high due to the
payment of
management fees
applicable.
The management fees
can take a significant
chunk out of your
takings. Check the
management
agreements, and verify
that their past
performances indicate
that they are capable of
letting out the property.
HOLIDAY/SERVICED
APARTMENTS
19
ADVANTAGES
DISADVANTAGES
With industrial units,
you are likely to get
long term tenants, who
are not likely to move
out suddenly. Normally,
you will get three to six
months notice before
the property is vacant.
Tenants may also pay
all outgoings such as
water rates.
CAUTION
It may take a while for
you to get a
replacement tenant.
While you wait, your
holding costs will
increase significantly.
Check out the general
types of businesses
operating within the
area, and find out
whether your unit would
be appealing to these
businesses.
PROPERTY TYPE: COMMERCIAL
INDUSTRIAL UNITS
ADVANTAGES
DISADVANTAGES
Office blocks involve
long-term leases,
usually three years with
the option to renew for
another three. You can
also subdivide and
sublet the office space
to several tenants.
CAUTION
Once your existing
tenant has vacated,
finding another tenant
may take a while.
Find out if the shop or
office space is
appealing enough to
the types of businesses
around you, and
whether there is enough
traffic to support this
type of business.
OFFICE BLOCKS
20
These are only but a few types of properties
that you can invest in. As you become a
more sophisticated investor, there are other
types of properties which you will find
opportunities to invest in, and in which is
beyond the scope of this book.
21
Research
C H A P T E R 3
Before purchasing or deciding on an area to make a property
purchase, the following research on the specific suburb needs to
be conducted. In actual fact, the research needs to commence
from a general overview aspect, and move down to specifics of
the property being considered.
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Finding out the current situation of the country’s economy. With
this in mind, you can then decide on your overall strategy.
Educating yourself on the latest happenings within the state of
the suburb you are keen on. Are there any laws that you need to
take into account when implementing your strategy (e.g. NSW
vendor tax)?
Analysing if there is a difference in conveyancing laws if you are
residing in a different state.
WHAT IS HAPPENING IN THE SUBURB? AREAS TO LOOK INTO:
Does the area have a high rental demand?
Changes to infrastructure?
Any major shopping centres going up?
What does the majority of the population in the area do?
What are demographics of the area?
What is the median price of property in the area?
Are there any imminent changes which will impact your investment
negatively?
What is the new price point being dictated by brand new properties?
WHAT IS HAPPENING IN THE STREET?
What do the other houses look like? Do you have the best house or
the worst?
Is the street tidy, or does each yard have a wreck sitting in their
front yard, which hasn’t been touched for ages?
Is there a lot of graffiti? What vibes do you get when you drive into
the street? The quality of the environment will determine the
quality of the tenants.
23
Property
Purchase
Ownership
C H A P T E R 4
When purchasing an investment property, the holding cost
will be dependent on the way the ownership of the property
has been structured. Additionally, how capital gains are
treated when and if you decide to sell the property, is also an
important factor.
Traditionally, when first time investors decide to make a property
purchase, they do not consider long term implications and end
up purchasing under joint names. This is potentially the worst
way you can buy property.
Let’s say that the couple wants to start a family, and the mother
decides to stay at home for the next couple of years as a
homemaker. Note that nothing has changed except the fact that
one partner has stopped working, and this will now make it
harder for the couple to hold on to the property.
However, if the same scenario is applied, except that the
husband now owns the property under his name only, the
holding cost remains unchanged regardless of the income status
of the partner. The ownership determines the holding cost.
Structuring the ownership according to your life plans is crucial,
as you will have certainty as to what the property is going to cost
you.
26
The above example is typical of what a novice would do on
buying a property, and end up buying a heavy negative cash
flow property. A rate increase in one of the costs or a situation
of prolonged vacancy and you are wiped out! This is the type of
property most investors end up buying because they do not
have expert guidance.
Hence, when examining your options from a cost basis of
holding a property, it is essential to think forward into the
future, on what you are planning, and what will likely happen to
your respective incomes. This way, you should then make the
property purchase in the name of the person with the most
stable income, and who will also be likely to get the most tax
benefits.
Disadvantages of holding property in a single name
One of the major disadvantages of holding property in a single
name is that the person owning the property has full rights to
dispose of the property, without the consent of the other
partner. This will put the other partner at a disadvantage, as he
or she may be on the mortgage, and therefore, is fully liable for
the debt of the loan.
In a divorce situation, however, the Family Court recognises that
the property had been held under such a structure for taxation
reasons, and therefore, views the property as being jointly
owned.
27
Think five years ahead when considering
which person should own the property. If
the intention is to sell the property within
the first two years, it may be prudent to
keep the property in the name of the lower
income earner to reduce capital gains tax
when selling.
28
Holding
Properties in
Trusts or
Company
Names
C H A P T E R 5
There may be investors that choose to hold their properties in
trusts or company names. These options may be advisable for
property owners who may face a risk of legal action because of
their professions for example, doctors or lawyers.
This method of ownership has its distinct advantages and
disadvantages:
ADVANTAGES
The income from property investment can be distributed to any of the
shareholders/beneficiaries of the company owning the property.
If the intention is to sell the property within the first year, then the
capital gains is taxed at a maximum company rate, which is 30%, as
opposed to the maximum individual rate, which can be as high as 48.5%.
It is always a good idea to check with your accountant in terms of your
long term plans before you decide on the ownership structure.
DISADVANTAGES
Land tax is payable depending on the state from the moment the
property is purchased. There is no threshold allowed before land taxes
are applicable.
The negative gearing effect cannot be passed on to the individual,
unless the trust is a hybrid trust. This may be reviewed by the ATO from
time to time. Your accountant will be able to advise you further on your
particular situation. If your accountant does not know, or says it can’t be
done, don’t get disillusioned. This just means that he or she is not
specialised in this area. Would you go to a GP to have brain surgery? Of
course not! The GP will refer you to a specialist, a brain surgeon. The
same is true for every profession. No one is an expert in everything.
30
Ownership under companies or trusts should
only be undertaken after consultation with
an expert such as a taxation advisor. Don’t
get sucked into expensive structures to hold
your properties just because someone is
standing on a stage and saying that’s the way
to go. Seek independent advice from
qualified property advisors.
31
Using a
Buyers
Agent
C H A P T E R 6
Buyers agents take the emotion out of a property purchase and
focus on the data to help you make informed investment
decisions and save you considerable time.
When you engage a buyers agent you will sign an agreement that
outlines the services they will provide to you and detail the fees
you will be charged. Ideally, they will charge a flat fee per property
and not a percentage of the purchase as their motivation should
be to get you the best price for the best property that suits your
needs, however, when their fee is tied to the price of the property
it can end up blurring the lines.
A good tip is to always ask your agent to outline any commissions
or rebates they will receive from third parties to ensure that all
dealings are completely transparent. If they are receiving a
commission from the builder, developer, agent, vendor, etc. for
selling the property then we begin to question if they are
recommending the property to you as a genuine quality
investment or because they will also financially benefit from you
buying it. A true buyers agent works only for the buyer. They do
not sell property and as a client, you should be the only person
paying them to ensure they are acting in your best interest.
At Right Property Group we are a unique combination of buyers
agents and property strategists. We help create a strategy
based on your goals and your financial resources – both now and
in the future.
We reverse-engineer your path to success, mapping out what
type of properties you’ll need and when. We define your
investment requirements so our buyers agent can secure the
right holding.
33
A property purchase is likely to be the biggest purchase you’ll
make in your life and making the wrong decision can be costly.
Paying for the services of a buyers agent & property strategist can
make all the difference between an average property and a thriving
one.
When you start looking into potential investment areas, there are a
lot of details to learn. It can be exhausting, from high-level
economics down to street-level sales. And then once you’ve
bought, you’ll ignore the market until it’s time to purchase again in a
year or two. Why not just rely on an investment advisor who’s
constantly searching multiple markets across the nation,
building on their knowledge and seeking out the right
opportunities?
You’re investing in knowledge: as an example, we know what plans
the council has in place for development and infrastructure, and we
know which sides of the street are flood zoned or are affected by
mining subsidence.
You benefit from the years of personal relationships we have built
with real estate agents, property managers, tradesman in the area
you are looking at purchasing in.
This is what we do every day - We are saving you time
If you have the inclination and time to invest in educating yourself
and making an informed decision, then managing the buying
process yourself is achievable. However, if you’re someone who is
time-poor, then a buyer’s agent would be a wise investment as we
will do all of the legwork and research for you, discarding 60-90% of
unsuitable properties before you even go to any inspections
I worked on the initial stages of building my portfolio with property
advocates who actually had a proven track record of owning several
investment properties themselves, and had used multiple strategies
to aquire them. In order to verify this as best as you can, request
testimonials from past clients before handing any money over.
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34
Over the years, these Buyers Agent's have
saved made me thousands of dollars in
profit, and I am glad to pay them their
fees. This is because I know that engaging
them helps me to get closer to my goal
….faster!
Of course, now I am a Buyers Agent
myself, and help my clients secure
multiple properties in a very short time
frame.
35
Negotiating
a Price
C H A P T E R 7
One of the rules I have when searching for property is to look for the ones
that have been listed for more than three months in a slow moving
market. The reason behind this is fairly simple: The property has been on
the market for a while, and the vendor usually no longer has high
expectations of the price. The real estate agent is also now a bit
disillusioned, as he has not been able to “move” the property in order to
earn his commission. More importantly, he or she would have already
begun to condition the vendor to start considering a lower offer.
Obviously, in a fast moving market, this strategy won't work!
I normally start by finding out what the vendor’s motivation is to sell. Is it
because they are moving interstate? Is it because they are going through a
divorce? Or is it because they are in financial strife? Careful questioning
may get you the answers. I normally inform the agent that I am happy to
inspect the property while the seller is still on the premises. This gives me
an ideal opportunity to ask the seller directly why he or she is selling. This
way, you can spot a fib a mile away!
The best start to negotiations is to win the agent over first. Impress upon
them that you are a serious buyer; that you already have finance in place
(which is also a prudent thing to do), and that you are likely to buy several
properties in the area.
You would probably have to make several such offers before getting an
offer accepted. A key element to buying well is to make money at the
time of buying. When you buy at a lower price, the cost of holding the
property, and the eventual capital gains you make will be far greater.
Needless to say, most of the time the offers will be rejected. The vendor
may even come back with a counter offer. I normally ask them at this
stage, “What do you think is a fair middle ground?”
Invariably, most agents will come back with a price range closer to
10% below the asking price, which I find most agreeable. Remember it
is not all about how far below listed price you get the property, it's
about identifying the opportunity in line with your goals and
capabilities.
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Now, I get the agent to “sell” the price to the vendor, and there is a
win-win situation. I have managed to buy a property at a percentage
below market value, and the vendor has been able to “get rid” of a
property that he or she has not been able to sell for the past three
months or more.
If you are really serious about buying a particular property, get it
valued at a very conservative price, by hiring a qualified valuer and
instructing him or her to do a fire-sale valuation (the price it would
sell for within 6 weeks) and present this to the agent. Make an offer of
a few thousand dollars above this price, and you will usually be able to
walk away with a bargain.
Of course you can utilise software data such as RP Data/CoreLogic or
Price Finder to determine the value rather than spending money in
hiring a valuer.
I do this not with a sense of “let’s rip 'em off” but with a sense of “this
is business, and I have the right to negotiate.” At the end of the
negotiation, both parties will walk away satisfied with the price, or
otherwise, there will be no sale.
There is no place for emotion in investing. The lower the price is
negotiated for, the stronger the property portfolio will be.
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Having said all of this, the amount of money
you get off the listed price shouldn’t be the
yard stick of whether you have secured a
bargain. Often vendors who need to sell list
their properties at a very sharp price and
there generally isn’t much movement in
price. You need to recognise the property’s
true value.
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How Real
Estate Agents
Are Paid
C H A P T E R 8
There are good agents, and there are bad agents, like in any other
industry. As most buyers tend to interact with an agent only once
or twice in their lifetime when purchasing property, understanding
how agents get paid, and the knowledge that they have, is the last
thing on their minds.
Of course, when you start investing, chances are that you will be
interacting with the agents of your choice quite often. Therefore, it
is prudent to know the type of training which they have undergone.
I regard the real estate agent as an important and crucial part of
my team. It is important to realise that the real estate agent is on
the vendor’s or seller’s “side” legally, as he or she is paid directly by
the vendors. Additionally, real estate sales are governed by rules
and regulations in order to make the industry fair. Having said that,
real estate agents are paid commissions from the sale value of the
property, and do not make any money until the property is sold.
The agent who listed the property gets part of the commission
regardless of who sells the property. If it is an exclusive listing, then
only that particular agency can sell it, whereas, for multi-listed
properties, several agencies are engaged and allowed to sell.
Whoever gets the sale gets the commission, and shares this with
the agent who had listed the property.
The commission rate ranges from 1 percent to 3 percent of the sale
price. Knowing this makes it pretty obvious that a price reduction
of say $20,000, will only make a difference of $200 in the agent's
commission. Therefore, most agents are willing to work with you if
the offer is reasonable enough to get the vendor to sell his
property.
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One of the common mistakes first time
investors make is to assume that the agent
has good investment knowledge, and
therefore, take his or her opinion on a
particular property as gospel. While there
are some very successful property investors
who are real estate agents out there, the
majority of them do not possess investment
properties at all.
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Exchange to
Settlement
C H A P T E R 9
It is important to know the sequence of events in a property
settlement process. Most of you would already have a good idea on
this, but I feel that it is important to include this in the book because
in the rush of things, we often forget the flow and this is where most
of us get stuck.
HOLDING DEPOSITS
A holding deposit is a sum of money that buyers pay to a vendor, as part of an offer to buy.
Depending on the state in which you're purchasing the holding deposit amount can vary.
Some states require a percentage of the purchase price (0.25%) whereas other states
require a set sum of between $1,000 - $10,000. This is paid to the real estate agent's trust
account.
The holding deposit does not obligate anyone and is merely an act of commitment by the
buyer. The vendor can still sell the property to someone else at a higher price, in which case
your deposit would be refunded. The property is not secured until contracts are signed by
both the buyer and the vendor and contracts are "exchanged". My recommendation is to
have the contract sent to your solicitor to review before signing unless you have experts
guiding you or have done this before.
COOLING OFF PERIOD
The cooling off period refers to the time after contracts have been exchanged within
which the buyer can still pull out of the deal. It is a sort of “grace period” allowing you to
reconsider all contract obligations. To pull out of the contract during your cooling off
period in most states would incur a penalty cost of 0.25% of the purchase price. However
in QLD as an example if you are not satisfied with the outcome of your pest and building
inspections or are not able to obtain finance you can withdraw from your contract and
receive a full refund of your holding deposit. The vendor is not allowed to pull out once he
or she has accepted the contract.
Cooling off periods vary from state to state and are generally:
5 business days in NSW, QLD & ACT.
4 business days in NT
3 business days in VIC
2 business days in SA
Whilst TAS contracts have no cooling off period.
For a NSW purchase I always ask for a 10 day cooling off period to allow me to obtain
formal loan approval and complete all of my due diligence.
In QLD, VIC and other states the contract can have finance and pest and building clauses
with a different time frame to the cooling off period.
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Unconditional exchange is the point at which the contract becomes legally binding for
both parties – yourself as the buyer and the seller. This is facilitated by your solicitor and
the sellers solicitor. After unconditional exchange both the buyer and seller are obligated
to proceed with the purchase so it is imperative at this point you have received formal
loan approval and are satisfied with the outcome of your due diligence and pest and
building inspections.
At this point, the balance (5% or 10% of the purchase price whichever has been
negotiated less the holding deposit you have already paid) of the deposit is payable to
the real estate agent's trust account. If you are working with a buyers agent their fee is
usually payable at this stage also.
The lender will issue mortgage documents which you need to sign. There are conditions
placed on you by the lender that you need to satisfy before settlement can take place.
One of these conditions is adequate insurance on the building, provision of a “certificate
of currency” of your insurance with the lender noted as the interested party.
UNCONDITIONAL
EXCHANGE
MORTGAGE DOCUMENTS
SIGNED
The settlement is booked, and the solicitor advises you on the settlement date.
Depending on your financial structure, you may have to organise a few more cheques. It is
prudent to inspect the property again before settlement to ensure that the property is
still in the same condition as you originally saw it.
SETTLEMENT IS BOOKED
If the property is vacant, pick up the keys (or arrange for your Property Manager to do so)
and get it ready to be leased. This is a good time to get the quantity surveyor to come in
and prepare the depreciation schedule.
SETTLEMENT OCCURS
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RE-DIRECT YOUR RENT
Redirect the rental income into an account where the direct debits for your mortgages
are originating from. I prefer my rent to be paid to me on a fortnightly basis for better
cash flow.
IChoosing the right partner to manage your asset is crucial as they have direct control
over the performance of your property.
I always review the management agreement with a fine tooth comb, because some
agencies will appear to give you a great deal charging a lower percentage of the weekly
rent, but then slug you with high fees for renegotiating the lease, re-letting the property,
or even paying rates or general bills on your behalf. The cost of the letting fee alone can
vary from 1-2 weeks of rent which can cost your bottom line a few hundred dollars before
even starting.
Depending on where you are buying the management rates can vary significantly. I
typically see rates of:
5.5% - 6.6% in NSW
7.7% - 8.8% in QLD
5.5% in VIC
7.7% - 13% in WA
Aside from the rates being charged, you want to ensure that the manager you select is
local to your property, and you want to gain insight into how they work and also how they
treat their tenants. There is no better way to do this than mystery shopping them!
Choose a property they have advertised online and send an online enquiry or call them
about it. Of course, you don’t want to take it any further than that but it will give you a
reasonable idea of their customer service. Also asking questions such as what their
staffing ratio is to properties managed and how many properties they manage vs how
many are vacant at that point in time can allow you to calculate their vacancy rate to see
if it’s in line with the local area.
Ensure that income tax variation is in place. A tax variation enables you to obtain your tax
refunds relating to the property paid to you each pay day, rather than a lump sum at the
end of the financial year. Your accountant will be able to help you with this.
APPOINTING A
PROPERTY MANAGER
INCOME TAX VARIATION
IN PLACE
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Saving for a
Deposit
C H A P T E R 1 0
If you do not own property at the moment, and do not have
adequate funds for a sizeable deposit, the first thing you should do
is to save up for at least 15% of the intended purchase price (10%
for the deposit, and 5% for the costs such as stamp duty etc). In
order to accumulate your savings, funds must be set aside in a
consistent manner, over a period of time, with no lump sums
deposited or withdrawn. It would be prudent to have these savings
sitting in a separate account, such as a cash management account.
Also, ensure that the account is in YOUR name.
Other alternatives to save are to buy shares or managed funds in
instalments. Many funds now let investors get started with as little
as $ 100 a month. A good financial planner will be able to help you
with this if you are unable to make sense of the maze of information
available on the internet with regards to managed funds.
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Getting an instant leg up
Rather than wait for 6 to 12 months (or longer in some cases) to
accumulate adequate savings before you are able start investing,
there are a few alternative options available to get into the property
market today:
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If you have a high income ($80k plus) it may just make sense
to borrow the deposit from a lending institution at the lowest
rate possible, through a personal loan. The borrowed amount
would have to be at 15% of the purchase price (sometimes
more), and this would go towards the deposit (10%) and the
closing costs (5%).
It is advisable to talk to your finance broker before you
embark on this path, as it does not make sense to go through
the high expense of getting a personal loan, and then finding
out later that you don’t qualify for a mortgage. This can be
risky if you end up with the wrong property.
1.
2.
If your parents or nearest relative owns a property, they can
help you with the deposit if they are willing to do so. Your
parents would have to refinance their property to be able to
give you the deposit required. Their money would then be
secured against your property by means of a caveat. In a
year or so, when the property value has gone up, you can
“top-up” your loan, and pay out the money that was
provided to you by your parents. This will work equally well
to get you your first property.
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Refinancing an existing property
If you already own a property, then a refinance would be a good
option, or a top-up to extract the deposit from the equity of the
property. People often do this the wrong way because of poor
financial structuring, and place their homes at substantial risk.
As all costs associated with the refinance would be tax deductible,
ensure that this, and the extra money that you will get out are
sitting in a separate split, for ease of accounting.
In the next chapter, we will review how many investors place their
homes at risk through poor financial structuring when buying their
investment property.
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One of the most common things that happen
when refinancing is that the full stamp duty is
charged on the finance, and there is no refund
arranged for the overcharged amount. This is an
unnecessary payment made to the Office of State
Revenue (OSR).
A good finance broker should be able to help you
arrange for this refund, or ensure you pay the
discounted rate at the start.
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Putting Your
Home at Risk
C H A P T E R 1 1
Do you know that using conventional finance when buying an
investment property places your home at risk?
Is your home at risk now?
Generally, lenders would link two or more properties together for
lending purposes. The borrower believes that they have one loan
per property, when in fact they have one loan for all properties, with
separate statements being generated for each “split”. This is
referred to as cross-collaterisation in lender terms.
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PROPERTY 1 PROPERTY 2
LOAN 1 LOAN 2
PROPERTY 1 PROPERTY 2
LOAN
STATEMENT 1 STATEMENT 2
What the borrower
may believe is this:
The borrower’s actual
structure really is:
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Why is it common practice to cross-collaterise
properties?
There are several reasons for this:
To protect the lender in the sense that the security that they
hold is significantly higher than the loan that they give out.
Lenders (and brokers) are of the opinion that the borrower will
not move away if all the facilities are under one roof.
Less paperwork for the broker.
Potentially more commission for the broker, due to the larger
loan size.
Borrowers see themselves as paying only one set of application
fees, thus saving themselves around $800. In actual fact, they
are placing their home at risk, for a measly $800.
How does cross-collaterisation affect the
borrower?
When properties are cross-collaterised, the following will occur:
If one of the two properties is the borrower’s home, then it is at
risk of repossession should they fall on hard times.
As banks “load” the rate for assessment purposes, the borrower
can only qualify for a lower amount, as opposed to a situation
where different lenders are used.
It reduces the number of investment properties the borrower
can finance.
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How can cross-collaterisation be avoided?
This can be avoided by utilising different lenders for the finance
of each property. In the case of multiple investment properties,
the same lenders may be used, provided that different mortgage
insurers are engaged.
How does cross-collaterisation reduce the
number of investment properties that a borrower
can finance?
If the same lender is used for each property purchase, the
borrower very quickly reaches a threshold where the bank is
unwilling to lend him or her any more money. Here, the borrower
is not able to pass their capacity test, as the lender would have
built in large margins to protect themselves.
If the borrower goes to another lender for the money, they may
qualify, because the same large margin is not built into the
capacity test, as the margin will be only on the money THEY lend.
How is your home at risk?
This could probably be best explained with the following
example. A couple has a home valued at say $800,000, out of
which $350,000 is from lender A. They also buy an investment
property, on which they owe $540,000, and is valued at
$600,000, again with lender A.
The couple thinks that they have two loans, as they are getting
two separate statements for each property.
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HOME $800,000
OWE $350,000
LOAN
STATEMENT 1 STATEMENT 2
INV $600,000
OWE $540,000
SECURITY VALUE: $1.4m
OWE: $890k
$350,000 $540,000
This is what they see:
1. There are two properties
secured against this loan: one
is the home, and one is the
investment property.
2. The investment property is
producing income, which when
combined with the couple’s
wages, would service the loan.
3. The home is worth $800k,
and only $350k is owed. The
owners cannot afford this
repayment at present.
Let’s assume that there is a change in the income status of the
couple. One of them has to stop working, and therefore, they
start falling behind in their repayments.
The bank looks at this situation, and starts the process to
recover their money.
The lender makes a business decision, repossesses the home
and sells it. The couple LOSE their home, while the bank makes a
fire sale, selling it at a very competitive price to ensure that they
get their money back as quickly as possible. Let’s say they sell it
for 90% of its value as they are keen to move the property. The
house sells for $720k, even though a normal sales process would
have achieved $800k.
The bank takes the $350k it is owed, PLUS the marketing costs
and default fees (usually running into thousands), and pays the
balance to the couple. They now have a very small deposit, AND
a bad credit rating, therefore making it extremely hard to start all
over again.
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HOME $800,000
OWE $350,000
OVERDRAFT
LINE OF CREDIT:
$290,000
How does the Right way protect you from losing
your home?
Better financiers implement an innovative finance structure so that
the properties are not cross-collaterised, thus protecting you from
losing your home. This is if a situation arises where the income is
reduced to the point where you cannot meet your mortgage
repayments. The following example illustrates:
INV $600,000
OWE 540,000
LENDER A
LENDER B
The home is refinanced with Lender A. A line of credit to 80% of
the value of the home is established. This is split into two, the non
tax-deductible loan (which is for the existing home loan), and a
second account for future investments.
The investment property is financed as an interest only loan
through Lender B. The loan is separate from the home, and not
linked in any way, thus providing less risk to the ownership of the
home.
If you were to face loss of income, you could continue paying your
home mortgage on your first account by first withdrawing funds
from the second account (line of credit) and secondly, from the
repayments of the investment loan with Lender B.
This gives you enough time to get back on your feet, with the bank
being none the wiser, as they will not notice that there has been a
temporary loss of income. YOU get to keep your home safe, and at
the same time, do not get charged 2% higher interest by the bank
for late payments.
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Note that the EXTRA money that you are
utilising to help towards the repayments cannot
be claimed as a deduction. Your accountant will
be able to give you further advice on this.
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Getting the
Right Team
C H A P T E R 1 2
As with anything that is worthwhile pursuing, having the right
support around you will make an enormous difference towards your
success.
One can decide to do things alone, but will have to go through a
slow process, limited by the knowledge and time that one has.
Alternatively of course, is to use professionals to do the leg work for
you. These professionals cannot be anyone off the street; they
must have the runs on the board themselves. For example, when
using a finance broker, ask how many properties they control. You
would surely not want your finances handled by someone who is
only doing a “job”. What is the value of experience that he or she
brings to you?
The advantage of using a support team is that you will learn from
the mistakes they have made in the past, without having to
make those mistakes yourself.
These professionals would more likely charge a fee for their
services. Care must be taken here to ensure that they are upfront
about their fees and charges, as they may receive a commission
from lenders and other institutes as well.
A team of successful professionals around you will ensure your
success, as it is in their interest to help you reach your goals, as by
doing so, they will earn their income.
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However, having said that, you should also not
get swayed by numerous seminars or fast-talking
sales pitches. Ask for testimonials and be
comfortable with the consultants, as you will be
working closely with them.
Sometimes these professionals will also refer you
to other like-minded team members. This is a
good thing, as you will then have a coherent team
working around you.
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Have Finances
Ready Before
Investing
C H A P T E R 1 3
The golden rule in investing is in my opinion to have the finance in
place before you start. Many would-be investors look for a
property, find one, and only start seeking finance for their
investment then. This is a strong case of putting the cart before the
horse.
Ideally, you should sort your finances out first. This would mean that
you obtain a pre-approval (conditional approval), with the only
condition being a satisfactory valuation over an acceptable
security. It is amazing how many investors do this the other way
around and in the rush of things end up being structured
incorrectly. They place their homes at risk for the simple reason
that they do not have sufficient time to think or implement correct
structuring once they find their property. This is why properties
often end up being cross-collateralised.
It is imperative, both from an accounting and taxation point of view,
that debt is clearly separated into deductible (claimable) and
non-deductible debt. This can be as simple as placing the
appropriate amount into a separate split. Often, the loan is
structured to consist of principal and interest. If there is a non-
investment debt that should be paid off first (i.e. principal and
interest payments), then the tax-deductible debt should incur
interest-only payments.
The ATO looks at the use of the funds, not the origin, in order to
determine whether a loan is tax deductible or not. Thus, funds
taken out of your home loan for investment purposes (e.g. deposit
on an investment property), are tax-deductible, as long as it is
clearly distinguished and the usage is easy to identify. The onus is
always on the taxpayer to prove that a loan is tax deductible.
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Financing should be done first and then once a
suitable property is found match that to the cash
flow that you are able to sustain. This way you are
assured of the holding cost and are also certain of
the amount of money you will have to attain, (or
get) each week.
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Finding the
Right Tenants
C H A P T E R 1 4
Checking tenancy databases like NTD and TICA for any past
issues in the applicant's rental history (things like rental
payments or property damage).
Calculating affordability. Generally, you want to ensure that
the rent is not more than 30% of the tenant's income
Verifying the applicant's previous living arrangements (even if
they were living with family) by speaking with the landlord or
property manager
Viewing the potential applicant’s social media footprint. If their
accounts are public you can ascertain a good picture as to
what their private life is like, and therefore how they would treat
a home.
Just because the tenant has a white-collar profession does not
mean that he or she may be a good tenant. Your property manager
will conduct a wide range of checks take place to determine the
tenant's suitability for the property before their application is
approved.
Once these checks are completed, property managers submit all
relevant, shortlisted applicants to you for approval. They may also
suggest who they think will make the best tenants. But ultimately,
the final decision comes down to you, not the agent.
Some of these checks are very quick, and others can take a couple
of days to run. These could include:
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Once these checks are completed, property managers submit all
relevant, shortlisted applicants to you for approval. They may also
suggest who they think will make the best tenants. But ultimately,
the final decision comes down to you, not the agent.
I often decide to allow pets in properties I have that are not
strata-titled. If you set the proper ground rules, these tenants can
become long-term tenants, as there are not many properties
available that will allow pets.
A particular tenant of mine has been in one of my properties for
well over 5 years, and the reason she stays on is that I allow her to
keep her pet ferrets in the house.
The understanding we have is that as long as there is no damage or
droppings in the house, she is welcome to keep them there.
This is a powerful benefit to her as the previous places where she
had rented had not allowed this and this was one of the reasons
why she needed to move.
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Remember, the quality and condition of the
property will determine the quality and
calibre of the tenants. Ask for longer leases,
rather than the standard three or six months. Most
tenants are prepared to sign a longer lease, but are
discouraged by the property managers, who will
not be able collect a re-letting fee (usually a
week’s rent) for these cases. You can always build
in a rental increase into a long lease. It’s what I
call a ‘ratchet clause’.
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Have Safety
Nets in Place
C H A P T E R 1 5
Now that you have purchased your investment property, it is time
to look at the safety nets that you need to put into place. The first
step is protecting the income, which comes from the rent, and is
dependent on the rental demand for the property.
You would have heard of horror tenant stories where tenants
trashed the property, didn't pay rent for months, and at the same
time didn't allow anyone access to the place. The poor landlords
drown in frustration, and cry out in anguish “I still have to make my
loan repayments! This will ruin me! I’ll never invest again!”
This is all because they do not have the right insurance in place.
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LANDLORD'S INSURANCE
The normal building and contents insurance does not cover
intentional damage made by the tenants, as they have your
permission to remain on-premises, and therefore are excluded
under most policies.
However, if you had Landlord’s Insurance in place, this scenario
would have been fully covered. Landlord’s insurance costs are
minimal (tax-deductible), and cover:
Malicious tenant damage and accidental damage
Non-payment of rent for up to six weeks (sometimes longer)
If the property is uninhabitable through no fault of the tenant,
alternate housing will be provided for the tenant and can be rented
for up to 52 weeks, while the property is in the process of being
fixed.
If access is not being granted, and rent is not being paid by the
tenant, the insurance company will pay for the rent.
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Therefore, each time a tenant trashes one of my properties, I jump
for joy (well, not quite!). The reason I am unfazed is that I know that I
will get new for old, and am able to then potentially charge a higher
rental to the next tenant.
For example, in one of my properties, the tenant absconded, and
the kitchen was absolutely unusable. I paid an excess of $500, had
my rental income continue while they replaced the kitchen (worth
about $10,000). With this, the end result was that I got a $10,000
kitchen for $500, which was a very good bargain and had no
interruption to my rental income.
Also, as I claimed on the bond, the insurance kicked in after the
fourth week with the rent. Therefore, I ended up with a property
that had INCREASED in value because of the new kitchen. In the
end, my cash flow increased, due to a higher depreciation claim for
the new kitchen, as well as a higher rental of $15 a week more than
previously. Thank you, Mr. Bad Tenant!
The moral of the story is that it is imperative to have the right
insurance in place.
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INSURANCE POLICY TO COVER DEBT
If your property is generating negative cash flow BEFORE tax, then
you need to update your insurance policy to cover for a sufficient
amount of debt. This is in the event that you are unable to work due
to a disability, your debt will be lowered sufficiently so that the rent
more than covers for all outgoings, and leaves you with some
money in your pocket.
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Each time you buy a property, you need to update your insurance
and will. If you have a good group superannuation policy, you may
be able to increase your insurance coverage within the super. This
is a cost-effective way as the premiums are paid out of your super
fund itself.
If your super policy does not allow this then you need to update
your insurance policy outside of the super. See your financial
advisor with regard to this.
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INCOME PROTECTION INSURANCE
The other important safety net is income protection insurance. This
is your biggest asset, yet it never ceases to amaze me that people
will spend up to $1,000 a year paying for comprehensive insurance
on their car, while they will not spend $1,000 a year insuring their
capability to earn an income, a premium expense that they can also
claim as a tax deduction! If they did not have the capability to earn
an income, they wouldn’t have been able to pay for the car
insurance in the first place. Ironically, they would happily fork out
money for this, and consider income protection insurance too
expensive.
Let’s look at the logic behind this. When you are insuring a car
worth $30,000, and paying a fairly large premium (approximately
3% of the value) for it, you are insuring a depreciating asset.
However, if you are say 20 years old, and also earn $30,000 a year,
insuring that would normally cost only 1% of your total yearly salary
(note that this percentage differs from profession to profession.)
Therefore, you are insuring an asset worth approximately $1.35
million, as the insurance will pay you until the age of 65 if you are
unable to work due to illness or injury (in most policies).
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If you do not have income protection insurance,
you need to stop reading this NOW to get it in
place as soon as possible! All your asset
accumulation is for nothing if you are not
protecting your most important asset: your ability
to earn an income.
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Getting Your
Refund Early
C H A P T E R 1 6
Owning an investment property while you are working means
that you are able to claim several outgoings as a deduction and
claim against any tax that you have paid.
Most investors make a claim at the end of the financial year
together with the rest of their tax affairs. Whilst this may work fine
for most people in my opinion if it’s possible to get your money
back today, why not?
One of the most under-utilised tax strategies in property investing
is arranging to get your refund early or parts of it. This used to be
called the 221D, which has had several name changes. Now it is
called a PAYG withholding variation.
This form is best filled out and processed by your accountant who
will use the depreciation schedule developed by a professional
quantity surveyor on your property together with the anticipated
interest repayments for that financial year to calculate your tax
refunds at the end of the year. With this, your accountant will then
apply for a refund of that amount.
The ATO assesses this and writes back to your employer
instructing them to withhold X amount less tax per pay thereby
increasing your take-home pay. Care must be taken to use this
extra money towards property repayments and not for other
expenses.
When you buy a well-researched property it is advisable to work
out the holding costs first before making a purchase. Apart from
that, a property can also generate positive cash flow because of
the depreciation value.
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DEPRECIATION
For tax purposes, the value of plant and equipment used to
produce income can be written down to zero over it’s working
lifetime. This is not physical money being spent, and therefore
implementing this tax strategy is very cash flow effective, as you
are claiming back what you haven’t really spent. Naturally, you
would have to have been paying tax to be able to do this.
Depreciation includes two aspects: building and plant.
Buildings built after the 18th of July 1985 can be depreciated at 4%
per annum, while buildings built after the 16th of September 1987,
are depreciated at 2.5% per annum over a period of 40 years.
Plants and fittings (lifts, pools, carpet etc.) are depreciated at a
faster level, and usually last only for 5 years. This does not mean
that if the previous owner had claimed depreciation for 4 years, you
will only have one year left; it is 5 years per owner, based on the
starting value at the point that you acquire the property. From 1
July 2017, investors are able to claim plant and equipment
depreciation, only if they actually incurred the expense for that
plant and equipment. More information can be found here.
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EDUCATION
Other items that can be claimed
Whilst this is not an exhaustive list, the following items can also be
claimed as a deduction. Your accountant will be in a better position
to assess what relates to you best.
Costs incurred for investment related education is usually
tax deductible. However, you will be unable to claim for a
deduction if you did a course first and THEN started investing.
This is the way the law works. Talk to your property accountant
for further clarification.
Therefore, if you own an investment property and then decide
to further your knowledge to help you acquire more properties
the cost would be deductible. However, if you had no
investments and did a course to help you understand the
property market before you started investing the cost is not
tax deductible. Check with your accountant first as the laws
change from time to time.
It is prudent to note that taxation benefits should really be the
cream as far as the reasons for investing in property is
concerned. Investors who buy a property purely as a tax
relief usually end up buying a property that is not ideally
suited for wealth creation over the long term.
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Know that generally, you can’t run a tax
minimisation strategy in conjunction with a
wealth accumulation strategy.
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Shares vs
Property
C H A P T E R 1 7
When speaking to clients I often get questions about my opinion on
shares in relation to property and which one would make a better
investment.
If you talk to people who are comfortable and have always only
invested in shares they will of course say that shares are the best
assets to invest in and will give you all the statistics and
calculations supporting their claim.
Similarly, people who are comfortable and have always used
property as an investment vehicle will give you arguments
supporting their claim that property is the way to go.
In my opinion, you should have a major interest in what works
well for you. If you are petrified with shares then perhaps shares
are not an asset class that you should have most of your money
put into. The same goes for property investment.
Both have their distinct advantages: shares are more liquid (you
can buy and sell fairly quickly), and property does not seem to be
as volatile in value as compared to shares.
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In my opinion, one must have a blend of
investments in both property and shares, in
order to achieve a balanced approach. What I
have done for my personal investments is to get a
sound base in property and then use the equity to
gear into shares. Again, this is after I have
completed all the relevant research required for
this type of investment.
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Getting
Started
C H A P T E R 1 8
Property investing is a serious business. It should be treated like a
business with the correct research conducted before starting and
a formal plan that is reviewed periodically, just like any other good
business.
In order to be able to leverage other people’s knowledge, join a
discussion forum or find a mentor. This way, you will learn from
their mistakes and successes without having to make those
mistakes yourself. Why would you want to reinvent the wheel?
This book was intended as a basic one to provide answers to
commonly asked questions. I hope that it has served its purpose in
giving you specific information and inspiration to get started.
As we live in the information age, we are often inundated with
information and, as one of my very successful mentors keeps
saying, “It’s like drinking out of a fire hydrant!” Therefore, don’t be
drowned in the complexity and abundance of information and get
into what I call “analysis paralysis”.
The best way to get started is to take action after reading this
book. Take baby steps first, then you will learn how to start running
the rewarding marathon of successful property investing.
Having bought dozens of properties in a relatively short period of
time, making mistakes as well as winning along the way, I have
designed a property investment system that can be tailored to suit
investors from all walks of life. This is so that you too can control
multiple properties over time, which will grow substantially in value.
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83
You have probably noted that I have not talked about how you can
successfully retire, that is stop working once you have successfully
built your portfolio. That was quite deliberate, as there are several
ways in which you can realise your profits, some aggressive, some
complex, and some downright simple.
Today, I run a successful buyers agency, Right Property Group,
where the emphasis is on building a multiple property portfolio for
our clients and then working with them with individualised
strategies to help retire the debt to get to the passive income.
If you want to find out more about how this service can be of
benefit to you head to
www.rightpropertygroup.com.au
Happy,
safe investing!
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and complete the ENQUIRE NOW form.
84
Successful Property Investing:
The Basics
By Victor Kumar
The author has asserted his moral rights in accordance with the Copyright Act 1987. No part of this book may be reprinted or reproduced or transmitted or utilised in any form, by print, electronic, mechanical, or any other
means, now known or hereafter invented, including photocopying, printing and recording, or in any information storage or retrieval system, without permission in writing from the publisher.
The author and publisher have made their best effort to produce high-quality, informative and helpful methods. But they do not make any representation or warranties of any kind with regards to the accuracy of the
methods shown. They accept no liability of any kind for any losses, damages, injury or alleged to be caused, directly or indirectly, as a result from using the methods shown in this book.
Successful Property Investing:
Disclaimer
This book is general advice based on the author's personal experience as individual circumstances vary.
Please seek expert advise before implementing any of the strategies implied or discussed in this book.
First published by Victor Kumar
Level 5, Nexus Building,
4 Columbia Court
Norwest NSW 2153
P.O Box 7624
Norwest NSW 2153
Tel: 1300 302 166
Email: [email protected]
Website: www.rightpropertygroup.com.au
© Copyright 2023 by Victor Kumar
All rights reserved Worldwide
Revised January 2023
