Everybody in real estate is always going on about “Location, Location, Location”. They even made a TV show about it. So why is this such a big deal?
Because it solves all your property investment challenges. What makes a good location? It all boils down to basic economics. Supply and demand.
The more reasons why as many people as possible would want to live in a location, near things that people want to be close to, creates demand of a certain type. If you own a property that satisfies this demand, you will always have a tenant. This solves the tenancy risk and growth risk challenge. It's also the kind of property with good tax benefits and relatively low outgoings, so you have a winner.
Some people spend so much time second guessing themselves and the market that they struggle to make a decision whether to invest or not, or what they should buy, that they miss out on so many opportunities staring them in the face. I call this analysis paralysis.
How do we find these locations?
The market is ever changing. It’s dynamic. For example, Sydney is Australia’s biggest and most active property market. When it moves, it moves quickly and with more momentum due to the large number of sales. Activity is driven by the buyers and sellers.
But at the moment, interest rates are at historic lows and prices have gone up significantly. What other markets out there can you invest in, within your budget? Melbourne, Brisbane and Perth are all different, and at different price levels, with varying degrees of rental return. They all have their opportunities, and are at different stages of their property cycle. They can have different supply/demand, government policy, infrastructure and infrastructure investment variables.
To establish where to go for another more affordable opportunity, we generally look for locations where value is being added — new being added to old, improvements to make the location a more desirable place to live, and so on.
Generally, when it comes to investing in property, buyers are too emotional. That’s not to say emotion shouldn’t be a part of it, but you are buying to make money so focusing on the numbers should be the priority. You should be financially affected in a positive way. A modest amount of research from a reliable source, that passes the common-sense test, can make all the difference, and working with people who do this can make it happen.
Debt, and how to pay it off
Most people borrow to varying degrees when they invest, and many already have debt before they invest. Most would prefer not to have debt, but it is necessary if you are to leverage to create any significant equity from investing over a reasonable period of time.
When embarking on any challenge, successful people always have a plan. Some people invest with no plan and do okay. That is just dumb luck. Investing with a plan usually means you carry less risk and pay your debts off sooner with less money. Create a plan that is tailor made for you to help you decide what you can achieve financially through investing in property.
Good debt vs bad debt
Using somebody else’s money incurs a cost — interest. When you borrow to buy the home you live in, it is repaid out of the money after you have paid tax on it. You have to earn a lot more money to pay off that type of loan. When you invest in buying a property with someone else’s money, you aim to get a return on that investment which reduces how much it costs you to pay the loan back.
This sounds like good debt to me. The interest on this loan is an expense, as a cost of doing business (your investment property is a business). This will reduce the tax that you normally pay. This reduced tax, added to the rent you receive from the property, should come close to, or actually completely cover, all of the outgoings for the property, including the loan interest.
Any extra you receive can be used to pay your debts more quickly, but which debt to pay first? The hardest one to pay off, of course. Use the cash flow from the investment property and your regular income, to save (read avoid) interest on your non-productive debt, as this is the one that will take the most to pay off in the long run. Get somebody else to help pay off your debts.
House, unit/apartment, townhouse, villa, duplex, factory, shopfront — each has its advantages and disadvantages as an investment.
Some improve in value more over a given period. Some attract more rent. Some have higher vacancy rates. Some generate more tax benefits. Some have more outgoings, and some are easier to sell.
The decision as to what suits you better is entirely a financial one. Some have a personal preference to a particular property class, which can help you sleep better at night, but if you are investing the only issue should be, which is the most suitable for you?
Your plan should tell you that. Your plan helps you to find a selection of opportunities that will get you where you want to go. Choose a suitable property and go for it.
Once the decision is made you still have to make it happen, but at least you are heading in the right direction. If you are happy with the plan and the chosen property will deliver your desired result, then all you have to do is manage it and ensure everything stays on track.
This article sponsored by Park Lane Property Group.
For more tips on selling your property or investing in property, see more of Sue Gartlacher’s suggestions at
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