Using real estate to create financial security for the future is a popular option for many Australians, however it can be tricky to know how many investment properties you need to retire to get the outcome you desire.

When it comes to planning for retirement, you need to ask yourself, what kind of lifestyle do you want? For most people it’s to enjoy their golden years without having to worry about money or penny pinching from week to week.

Investing in property is a great way to set yourself up to thrive in retirement because it has the potential to not only increase your net worth but also provide you with a stable income. Many investors ask the question of how many investment properties you need to retire?

The short answer is that there is no magic formula – everyone’s retirement goals are different, not all investment properties perform similarly, and predicting the future is impossible.

However, with help, you can develop a plan for building a portfolio that will satisfy your retirement lifestyle needs. The key is to be able to see past your first one or two properties as you’re going to need a much larger portfolio than that to gain financial freedom.

WHY INVESTORS FUND THEIR RETIREMENT WITH REAL ESTATE

There are a multitude of ways to fund your retirement, and the most common among Australians seems to be relying on superannuation and pension payments. Unfortunately the harsh reality is that depending solely on these will likely force you to live very frugally, especially with living costs rapidly rising. Today the pension sits at about $36,000 per annum, per couple. It doesn’t sound like a lot right?!

Real estate is a long-term investment and therefore time is on your side. The earlier you embark on your investing journey, the greater success you’ll likely achieve. Real estate is a key investment vehicle for many Australians when it comes to planning for retirement and that is because it is stable and will always be around in society.

Positive Cash Flow

Rental property has the potential to generate income if done right, and this is one of the main reasons why people use property investing to retire. The cash flow from a property refers to the pre-tax income earned and is calculated using the below formula:

weekly rent × number of weeks rented in the year = annual rent

– all expenses (excluding interest)

÷ purchase price × 100 (to get a percentage)

This is also known as rental yield. A good figure to aim for is between 4-6%, the idea is for the yield to mirror the interest rate as closely as possible. Ideally, your rental income and tax deductions should be covering the majority of your running costs, and then some to generate a profit.

However there may be times when your cash flow is lower than forecasted, or even negative. Any business is unpredictable, especially the landlord business, you may have to pay for unexpected repairs, or your property may take longer to find a quality tenant.

Any good property investor understands the importance of safety buffers, which refers to money set aside in your budget for any unforeseen expenses. This is not extra money to go on holiday or buy a new car, it should be reserved for legitimate expenses connected with your investment property(ies).

Capital Growth

Home prices in Australia have historically increased over time. According to the latest report by the Australian Bureau of Statistics, the total value of the nation’s 10.8 million homes grew by $2 trillion to a record $9.9 trillion in 2021. What this means is that we have seen a 23.7% increase in residential property prices in the last 12 months, one of the strongest annual growth records.

Of course, nothing increases linearly, and real estate is no exception. However, as mentioned property is a long-term investment, which is why most real estate investors adopt a buy-and-hold strategy so they can make the strong gains that come with a normal real estate cycle.

Recycling Equity

The quickest way to build a large property portfolio is by recycling equity. Equity is the difference between the market value of your property and the amount still owing on your mortgage. This strategy allows you to purchase a property with someone else’s money.

Basically, the bank will allow you (pending conditions) to borrow against the available equity in a property. It can be scary to think about increasing your home loan, however you need to flip your mindset to see the benefit of expanding your asset portfolio using very little of your own cash.

Tax Benefits

Offsetting income with depreciation is perhaps one of the biggest tax advantages of property. Including depreciation within property expenses can increase the loss on paper without incurring a cash loss. Therefore, increasing the expenses and amount of tax deductions available.

Along your investing journey you may have a property in which the expenses exceed the rental income. This is known as a negatively geared property and is most beneficial for high income earners because the ‘loss’ can be offset against other income.

KNOWING YOUR NUMBER

Before you start building your property investment strategy, you need to get really clear on what kind of retirement lifestyle you want to live. This will help inform how many investment properties you need to retire.

It’s a morbid question, but it will underpin your future decision making, how much money do you need to die? Understanding how much income you want each year in retirement is a thought that many of us don’t think about until it’s too late. Whether you’re after a comfortable or lavish lifestyle, you need to do the maths. 

1. Determine your desired retirement annual income
2. Assume a gross rental yield (between 3-6%)
3. Divide income by rental yield

This will give you the amount of money you should have invested in property. It’s then up to you to use this figure and work out how many properties you should own which will be dependent on how much retirement income you desire.

THE THREE PHASES OF AN INVESTORS JOURNEY

There are three phases to building a property portfolio before an investor is ready to reap the rewards of their hard-earned labour.

Acquisition of Investment Properties

The period of acquisition refers to the initial stages of an investor’s wealth building cycle. Your main goal will be to acquire as many properties as possible to help build your asset portfolio quickly, and to generate as much rental income as you can to increase cash flow.

In this stage of an investor’s journey, interest-only loans can become an important part of the toolkit because they allow you to only repay the interest charges on your loan for a specified period (3-5 years). Interest only loans allow investors to tap into a market that they wouldn’t otherwise be able to afford. However, they can also be risky, especially when the principal payments kick in. Any good investor will prepare for this and ensure they have a buffer set aside.

During the acquisition stage, you want to be focusing on high growth properties in a variety of locations in order to make the most out of your equity gains. To do this, you will need to understand what factors influence the market.

There are both macro and micro factors that drive the real estate market.

Macro drivers of growth:

• Population growth
• Infrastructure growth
• Supply vs demand
• Economics
• Demographics
• Yield

For example, you want to have your eye on locations where there are infrastructure developments because this attracts people to a location (population growth). In or near cities are often high growth markets because there are always job opportunities (economics) which again, brings people to the area. These people will become your tenants.

Micro drivers of growth:

• The owners established benchmark
• The new established benchmark
• Socio-economic
• Symbolic landmarks
• The ripple effect

The above drivers will help you narrow down what micro markets to buy in (suburbs or towns). For long-term growth, symbolic attributes are a unique aspect that can enhance the performance of an area. The owner’s established benchmark is when an investor looks for the ‘worst house on the best street.’ Finding a property that is a blank canvas, situated close to properties higher in value will give you a good chance of increasing the value of your investment through renovation.

Consolidation of Property Portfolio

Once you’ve exhausted all of the equity the banks will allow you to lend against, the next phase is to consolidate your investment portfolio. You’ll need to refine your investments to maximise rental yield, therefore increasing your cash flow. Most investor’s will cycle through the acquisition and consolidation phases numerous times until they are ready to transition to the lifestyle phase of their investing career.

To move into a positive cash flow phase, you will need to lower the loan-to-value (LVR) ratio of your portfolio. What this means is that you’ll need to reduce the amount of debt you have, you can do this in several ways:

• Sell one or more non-performing properties: as you move closer to retirement, it is wise to let go of properties that are making a loss, otherwise you’ll have to sacrifice some of your retirement income to maintain the investment.

• Add value to your properties through development or renovation: increasing the market value of your property will therefore increase the value of the investment against the mortgage.

• Stop buying properties (or reduce the rate at which you’re buying them): when you’re in the growth stage, it can get quite exciting expanding your portfolio quickly, but more properties doesn’t necessarily mean more income. As you get closer to retirement it is best to become very selective with the properties you acquire.

Once you’ve reduced your debt to a lower LVR – maybe somewhere like 50% or so – you’ll be able to enjoy the benefits of leverage while owning property that is positively geared. A property which is geared positively means that the income derived from owning the property exceeds the financial and maintenance costs incurred. Positive gearing is generally seen as lower risk than negative gearing because it provides more consistent income.

Retirement Lifestyle

You’ve finally made it! The lifestyle or legacy phase of an investment property career is the place the property investor is striving towards. You’ve built your portfolio to a point where it is generating enough income for you to retire (in whatever way that is to you).

Maybe you’ll work fewer hours in order to do something you enjoy more, such as travelling, gardening or golf. Regardless of what retirement means to you, the main idea is that you no longer need to work in order to fund your lifestyle, because your investment properties now provide that income for you.

Once they reach retirement, most investors adopt a more conversative approach to investing, in order to protect their assets that they have so tirelessly grown over the years. During this stage, there is less focus on building your portfolio and more emphasis on enjoying passive income.

THERE IS NO MAGIC NUMBER TO HOW MANY INVESTMENT PROPERTIES YOU NEED TO RETIRE 

Everyone wants to have passive income in their retirement, but not many actually reach the stage where they can successfully make the switch. The first step is deciding what kind of retirement lifestyle you want, and then working out how much money you’ll need to fulfil that.

If you’ve decided that property investment is your chosen vehicle for creating wealth, then your next step is to get help. Instead of asking, how many properties do I need to retire, you want to focus on the combined value of your portfolio and the returns it provides.

Find someone that has done what you want to do and follow their example. That’s where the TRC-Gorod team comes in. Learning from someone who has done what you want to achieve is the quickest and easiest way to learn.

Come along to one of our free property investment seminars. Our coaches and mentors have real life experience as property investors and can give you the tools, resources and knowledge to help you build your wealth portfolio for retirement.

Register now for the free property investor webinar
See our property investment strategy guide
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When it comes to real estate, there is a lot to learn about property investment and one of the first things you’ll need to determine is what property type/ or types will be best for your portfolio. When you strive to learn everything you can about investing in property, you increase your chances of creating generational wealth!

The best type of property to invest in is dependent on a number of factors about the investor and their real estate strategy.

Different property types will deliver different results and what may work for some investors, will be completely off the mark for others.

To ensure you’re across the best type of property investment for you and that you’re ready to invest, here are some things to consider:

YOU’RE PERSONAL RISK PROFILE

When it comes to property investment, the amount of risk you’re comfortable with is a crucial factor. Essentially, it will come down to how willing you are to expose yourself to loss, and how you will adapt when things go wrong. Additionally, there are always ways to manage risk in real estate.

There are a few different risk profiles that investors generally identify with:

• Conservative

Investors with conservative risk profiles have a low appetite for risk and as such are more likely to take a conservative approach and invest in low-risk options that are more protected from financial loss.

• Balanced

Investors with balanced risk profiles have a more moderate appetite for risk and are likely to invest in real estate that will steadily appreciate over a long time. They may also adopt a balanced strategy where they own multiple properties that balance each other out.

• Aggressive

These investors have a high appetite for risk and are generally focused on achieving maximum returns from their investment. They are typically interested in growing a profit at a faster rate, focusing on high growth and value add strategies.

Generally, there are three main ways that investors may handle risks, based on their own risk profile. This includes risk avoidance (completely avoiding a clear risk and therefore eliminating it), risk control (controlling a risk by having the proper precautions in place from the start) and risk transfer (transferring potential risks, usually with the use of contracts or insurance).

YOUR FINANCIAL CAPACITY 

Your financial capacity refers to your ability to build wealth and create success through investment decisions by using your own resources (education and savings). It can depend on a range of factors, including your ability to save, your own research on investing, your financial and personal goals and how you plan to achieve them.

There are three key wealth creation principles that will help you understand if property investment is a good fit for you:

1. Understand your money ‘buckets’

Money buckets are how you grow your wealth. Most people only have one bucket where they’ll put all their wages and nothing else. But, investors know that this isn’t enough to create financial freedom or success.

Therefore, it’s smart to have other buckets being filled at the same time. These come in the form of other assets or strategies that work alongside our wages to help build that wealth, whether that’s shares, side hustles, or real estate.

1. Know your budget

Calculating how much is coming in and out of your bank account(s) every week, month or year is important when defining your financial capacity. Doing this will help you see how much you need to save, how much you can spend and how much you’ll have left over when it comes to building your investing strategy.

It will also help you narrow down your options for an investment property and may even show you what you’ll need to retire comfortably (or lavishly).

1. Learn what grows your wealth vehicle

Property investment is great for creating wealth. Real estate has always had incredibly reliable returns, and being a physical asset, it will always be around in society.

But what drives the growth in real estate? There are six common market drivers that help push up values:

• Population growth
• Infrastructure growth
• Supply vs demand
• Economics
• Demographics
• Yield

Each of these will influence property growth. For example, if you can find population growth in an area where infrastructure is improving and expanding, where you know that people are going to want to live, then that’s a good place to invest.

YOUR LOCATION STRATEGY

The significance of location is simple – you can do what you want with your real estate, but you can never change the area it’s in.

Knowing what drives growth in property investment (like the factors mentioned above), and what will therefore influence your wealth, must be taken into account when defining your location strategy.

A lot of quality real estate gets overlooked because investors have preconceived ideas about certain locations, but remember it’s not about buying property for yourself to live in, rather property that’s going to attract the right tenants.

In summary, look for a location where you are going to get a good rental income, and ideally in a capital growth area.

WHAT TYPE OF PROPERTY IS BEST FOR AN INVESTMENT?

Established houses

Investing in houses offers the prospect of capital growth to increase your wealth, rather than through rental returns. Choosing an established house as your property investment will allow you a less stressful process, in comparison to building a house. You may also be able to rent out an established house immediately, allowing you to earn a rental return from day one, which is desirable for a lot of investors.

Investing in established houses – benefits vs. disadvantages

Benefits

Investing in houses offers the opportunity to increase your capital growth through strategic improvements, such as through subdivisions or renovations (renovations on an investment property are tax deductible too!)

Disadvantages 

Typically, a large share of a house’s value is tied up in the land. This means that often, the rental yield won’t reflect that value. Maintenance costs can also be high in houses because you’re responsible for the entire structure and landscape.

As low-maintenance properties can sometimes be difficult to obtain, investing in existing properties can mean repairs and maintenance which, although tax deductible, can be expensive.

What type of investor should buy an established house?

Purchased at the right time of the market cycle and in the right location, investing in established houses is a good strategy for people in the early and middle stages of their investing journeys.

If you buy when the market cycle is at its lowest, then hold, you’ll gain the most benefit. As rents grow, and as your debt is reduced, your investment will soon begin to pay for itself. Until such time, you’ll gain tax benefits either through a cash neutral or tax negative position.

 

Apartments 

As investment properties, apartments can sometimes be more affordable and better value than houses. They can produce higher rental yields than houses and this is always good news if you are on a tight budget when buying.

While investing in houses offers great capital growth, apartments in good locations can provide the capital you’ll need to build up your investment property portfolio when you’re just getting started.

 

Investing in apartments – benefits vs. disadvantages

Benefits

As stated above, investing in apartments can produce higher rental yields than investing in established houses. They may also have lower council rates, maintenance requirements and are very desirable to younger tenants looking for certain lifestyles and living locations.

If you are striving to be cash-flow positive in your investments, apartments may be one of the best types of property investments for you.

Disadvantages 

There is no perfect investment for any one person, and apartments are no exception to the rule. The building’s value may rise in the future, but the land value won’t necessarily follow. The building and all of the improvements that go with it is where the value lies.

You will also have to pay body corporate fees and strata levies.These costs are non-negotiable and go towards maintaining any common areas. You will also be limited on the amount and type of renovations you can do to this type of property due to strata laws.

Additionally, if you buy in the wrong location where the market is oversupplied with apartments you’ll also experience both limited capital growth and rental yields, so it’s important to choose apartments based on demand, desirability and supply.

What type of investor should buy an apartment?

Investors who are further along in their property investing journey and those nearing retirement would do well to buy apartments as they can be a good income source and are fairly low-maintenance.

Villas and townhouses

For those that are stuck between wanting to invest in a house and an apartment, a villa or townhouse can be a good ‘in-between’ option.

They are usually desired by those wanting the space and privacy of a house but lacking the budget for one. Villas and townhouses are generally quite spacious and are statistically cheaper than houses.

If purchased in a highly desirable location, this type of property can deliver both capital growth and a relatively high yield.

Investing in villas/townhouses – benefits vs. disadvantages

Benefits

Townhouses usually offer more space and privacy than apartments, usually with at least two storeys and sometimes a small, fenced in front or backyard. This means they can be very desirable and in high demand for many different types of people (couples, small families, people with pets looking to downsize, etc.)

Townhouses can deliver capital growth that rivals houses and rental yields similar to apartments. They also offer the potential to renovate, provided the by-laws allow it, which can increase both your property’s value and your rents.

Disadvantages 

Like apartments, villas/townhouses can require extra costs like body corporate and strata fees. On top of this, while you own the dwelling, you still share the land with the other owners.

Additionally, over time, a property can become outdated. If the by-laws are too restrictive this can impact an investor’s ability to update a property either through renovation or even as far as demolition. Also, a group of villas or townhouses might face competition from similar properties, offering investment property owners little opportunity to make their property stand out amongst the crowd.

What type of investor should buy a villa/townhouse?

This property style offers individuals who are in the beginning stages of growing their investment property portfolios a lower price point than houses. Also, the capital growth prospects provide access to leverage that can help them continue to grow their wealth.

In investing, “leveraging” simply means borrowing money to finance another investment that will allow you to increase the return on investment. For example, when your investment property value increases and delivers you more equity, you can leverage this equity to purchase another property, and therefore build your investment portfolio.

Although investors can be reluctant to borrow money, as they see it as a big risk, leveraging often allows you to purchase more property than you could otherwise afford.

WHAT IS THE BEST TYPE OF PROPERTY TO INVEST IN?

As you can see, the best type of property investment depends on the investor, what stage of life they’re in and what they value. Don’t forget that the best type of property for an investment will change from investor to investor.

Whether a great investment is good value will also boil down to its location, amenities, size, and the current condition of the property. Your strategy, portfolio goals, and financial circumstances will also play a part in the success of your investment property, so it pays to understand your personal situation and the property itself.

Remember that the right property type for you depends upon a number of factors; your financial situation, how long you’ve been a property investor, the state of your current investment property portfolio, when you expect to retire, your capacity for risk and much more.

If you’ve been searching the markets but still aren’t sure where or what to buy, it’s best to consult with a professional property advisor. Our team at TRC-Gorod have almost 20 years’ worth of experience and knowledge. If you’re ready to connect with property experts that can guide you along your investing journey, then check out our free property investor webinar for all the help you need to find the best type of property investment for you!

Register now for the free property investor webinar.

Real estate has the potential to become your main vehicle for creating wealth, but only if you take the time to learn some crucial property investment basics to set you up for success as an investor.

All too often, wanna-be investors try to jump into the game without fully understanding what they’re getting themselves into. Before you even put in your first offer, you need to determine what your “dream” financial goal is, and then from there you can develop a custom-built plan that not only suits your current lifestyle but also challenges you to make decisions for your desired future.

These are the four property investment basics that every investor needs to know before buying an investment property.

1. BRAINSTORM YOUR FINANCIAL FUTURE

In order to set yourself up for success, you need to consider what you desire from property investing. This is the first step in property investment basics, so be bold and dream big – your future is in your hands!

Having a clear understanding of the end-goal will greatly assist you when it comes to planning how to get there. Perhaps you’re wanting to work less hours, travel more or retire at 40? Sit down, grab a pen and paper and start mapping out your dream life.

Setting up your plan of attack

Now that you have a clear understanding of what you want, it’s time to establish a timeframe for achieving your goals. The key to building a sustainable plan is to break it down into micro-steps that you can work towards each week.

1. Establish a six month, one year and five year time frame.
2. Under each time frame, create a list of the five most important steps that you need to do to get closer to your target.
3. Schedule a time, either quarterly or bi-annual to review your goals.

By reviewing your goals regularly, it will give you the opportunity to adjust your plans as your personal situation changes.

2. GET YOUR FINANCES SORTED

The foundation of your property portfolio is finances. So the next step in property investment basics is getting a handle on your money.

Pay off consumer debt

Before you even think about purchasing a home, you want to eradicate all of your consumer debt. Having consumer debt is a massive financial liability that will make it incredibly difficult to secure lending from the banks.

The less consumer debt you have, the better your ability to both purchase and service your investment properties.

Create and stick to a budget

Be honest with yourself. If you’re not disciplined with your finances, your success will be limited at best.

A budget can be done on a rough piece of paper, or if you’re after something a bit more sophisticated, then there are a multitude of budget templates online to help you track your income and expenses. Once you know where your money is going, you’ll be able to spot patterns.

The essence of budgeting is to track what’s coming in and what’s going out. Your financial situation cannot be improved if you don’t know what’s happening in your bank accounts.

Being able to create and stick to a budget is a vital skill that will assist you greatly as you expand your property portfolio and accumulate wealth so the earlier you can get a grasp on it, the better.

3. LEARNING THE KEY CONCEPTS

When you’re first starting out in property investing, it can often feel like there are a million things you need to know before you can even purchase your first home. For many people, this can be a put off and is usually when they tend to throw in the towel. However, if you put some time aside to become informed, the rewards for your efforts will pay off – literally!

While there are several key concepts that you should have a basic understanding of, you certainly do not need to become an expert in everything real estate to build a successful property portfolio.

Here’s a few simple things to be across.

Drivers of the real estate market

In order to secure a great property to add to your portfolio, you need to understand the drivers that influence the market. For example, knowing that investment in infrastructure generally leads to increased population will help you identify the areas that are on a growth curve. The main market factors to be aware of are:

• Infrastructure – spending on infrastructure points to a growing economic base
• Yield variation – signals growth
• Supply and demand – indicates need in the marketplace
• Population – fuels growth in an area
• Economics – reveals clues to an area’s capacity for growth
• Demographics – influences growth – as incomes grow, so do property values

Positive versus negatively geared property

A property is negatively geared when the expenses of owning the property – including maintenance costs, depreciation and borrowing costs – exceeds the rental income, resulting in a loss.

Negative gearing deductions are most beneficial to people in high income brackets where they are in the top marginal tax rate. This is because the ‘loss’ is able to be offset against other income (e.g. salary or business income) therefore reducing the tax obligations of the owner.

Including depreciation within property expenses can increase the loss on paper without incurring a cash loss. Therefore, increasing the expenses and amount of tax deductions available.

This strategy works very well for high income individuals as the more money which is borrowed the more interest is charged which can then be deducted 100% from the owner’s taxable income.

If you’re planning to adopt a negatively geared property strategy, then you must have a good understanding of the potential costs. While negative gearing allows investors to recoup some of the costs via tax savings, it still results in losing money and therefore cash is needed to help service the property. The long-term strategy behind negative gearing is the hope that the losses will eventually be compensated in the form of capital gains in the future.

A property which is geared positively means that the income derived from owning the property exceeds the financial and maintenance costs incurred. Positive gearing is generally seen as lower risk than negative gearing because it provides more consistent income. The surplus income can cushion investors from interest rate hikes or unexpected property (or life) costs.

With a positively geared investment, investors are not able to reduce their income or get tax benefits. The ‘profit’ made on the rental income will be taxed at the appropriate rate. However, what positive gearing does provide is additional income which can be used to pay down the mortgage quicker, or used to invest elsewhere.

Both negative and positive gearing have their place in a property investor’s portfolio which is why it is important to have a clear understanding of both to determine how they may fit into your real estate strategy.

Positive cash flow versus positively geared property

A “positively geared” property creates more income than expenses before tax, which means your rental return and tax breaks cover your outgoings, leaving your wage or income unaffected. Whereas positive cash flow property only creates more income than expenses after tax deductions and refunds are calculated, making it a self-funding investment.

Investors that follow a positive cash flow strategy understand that living off passive income is the key to an early retirement. That isn’t to say that positive cash flow is better than a positively geared property – it all comes down to your specific financial situation.

For example, if you’re looking to purchase in a high growth area then perhaps a positive cash flow strategy will be right for you. Generally speaking, new or newly renovated (high depreciation) homes hold the greatest potential to be positive cash flow because you can claim a larger “on paper” loss.

On the other hand, properties which are older and less expensive have the potential to offer a strong rental return, creating a positively geared property.

Your strategy will come down to whether you want to lose money and recover it through taxes or earn money before taxes and offset the income received through tax deductions, essentially paying little to no tax.

The importance of safety buffers

Regardless of what strategy works for you, the concept of safety buffers is a key underlying factor to all successful real estate strategies. Every investor’s budget should include money set aside for any unforeseen expenses that may arise. This is not extra money to go on holiday or buy a new car, it should be reserved for legitimate expenses connected with your investment property(ies).

Having your safety buffer sit in an offset account gives you the ability to earn compound interest until such a time where this money may be needed.

An offset account is simply a savings account which is linked to your loan account. Let’s assume you have a mortgage of $100,000 which is linked to an offset account with a balance of $10,000.

In this scenario, you would only accrue interest on $90,000 rather than the entire $100,000. You will still pay back the principal of $100,000, however the interest will only be calculated on the $90,000. Therefore, your mortgage repayments will be more effective at reducing both the principal and interest on your loan.

4. GET HELP FROM EXPERTS

Now that you have a basic understanding of the key concepts of property investing, it is time to put them into action. Remember that knowledge is only potential power. You can research for months, but if you take no action, you’ll still be back at square one.

Beginner investors often experience information fatigue, they know what to do but don’t know where to start. This is why it is crucial to develop your six-star team that will help you climb the ladder of success. Let’s explore this further:

Find a good mentor

The best way to learn is from someone who is doing what you want to achieve. When learning something new, mentoring can help ease the learning curve because in addition to “textbook” knowledge, a student under the tutelage of an experienced property mentor can take advantage of the many years experience of their mentor without having to go through the experiences themselves.

Establish relationships with industry experts

Some of the most successful people in the world will tell you it’s ‘who you know’ not ‘what you know’ and this couldn’t be more true for the real estate industry.

Find networking events that give you the opportunity to mix with industry experts. Our free real estate investing seminar is a high-value two-hour event that will connect you with the people you need to know to build your team.

Having the right team is vital for your success, by surrounding yourself with knowledgeable property professionals, you will be putting yourself in a position to soak up all that they know. It’s all about working smarter, not harder.

 

PROPERTY INVESTMENT BASICS NEXT STEPS!

Now that you have a good understanding of the four top property investment basics, it is important to remember that everyone’s journey is unique and there is generally no one size fits all approach to real estate investing.

As long as you are aware of all strategies, and you work with a team to determine which is the best fit for you and your long-term goals then you’ll be on your way to creating generational wealth through property investment.

The best thing you can do is get support, so come along to one of our FREE property investing masterclasses. Our coaches and mentors have real life experience as investors and can give you the tools, resources and knowledge to help you build your property portfolio.

Register now for the free property investor webinar

It’s the Australian dream – the clock ticks 65 (or earlier) and off you sail into the sunset of retirement to live out the rest of your years stress-free. Sadly, for some, this will remain nothing more than a dream with the drastic cost of living rising and no plan to cover the shortfall – that is, unless you take onboard these retirement planning tips which could change the way you prepare for the future. Our property investment groups is a great place to keep informed about the ever changing landscape of real estate investing.

The truth is, unless you can live off $500 a week then you’ll need to start planning ahead now. That’s because a mere few hundred dollars is all you’ll get if you have $523,000 in your super by age 65 (estimating that you’ll live to 85).

This is the approximate amount that Australian Super Funds of Australia (ASFA) says you’ll need to live a comfortable retirement, based on the assumption that you’ll also receive the pension which is $36,000 per couple or $24,000 if you’re single. It doesn’t sound like a lot does it?!

Assuming you want more than to just scrape by after all those hard years of work, then these retirement planning tips are what you need to be across in order to retire stress free.

TIP 1 – CRITICALLY EVALUATE YOUR SITUATION 

What is your financial situation right now? Before we look at where you’re headed, we first need to understand where you are today. Do you live paycheck to paycheck? How much do you have in your super? What about your emergency fund? These are all extremely important questions that most Australians overlook when wading through life.

The thing about financial security is that when you have it, everything else in your life changes for the better. That’s why the sooner you start creating wealth, the safer you’ll feel and the more you can live the way you want without having overarching guilt or feeling stuck in your current position.

There are three basic principles when it comes to creating wealth. So, put aside one hour, grab a pen and paper and let’s get a better understanding of your current financial situation.

Principle 1: Money buckets

Money is an energy exchange, the better you understand it, the more you’ll attract. As we grow up, money is often a taboo subject, and because it’s not talked about, we enter adulthood knowing nothing about money.

So here’s your first lesson; money buckets. They’re basically how you grow and accumulate wealth. Most Australians only have one thing in their bucket e.g. their wages. We know this isn’t going to create wealth for a stress free retirement.

You need to diversify and put your eggs into other buckets. These come in the form of other assets or strategies that work alongside your wages to help build that wealth, whether that’s shares, side hustles, or our favourite – real estate.

Principle 2: Knowing your number

This is asking the hard question, how much money do you need to die? Most people pluck a number out of thin air with no strategy behind it. Actually no, most people never even answer this question!

To create an informed investment strategy that will allow you to retire stress free, you need to work out what you need every month to live the life you want. Whether you’re after a comfortable or lavish lifestyle, you need to do the maths. If you don’t know how, this method will take you through the process. 

Principle 3: Learning what grows your wealth vehicle

Let’s be clear, property doesn’t need to be your vehicle of choice for creating wealth for a stress free retirement. But, if you want an investment strategy that’s safe, steady and guaranteed to look after you in the future, then you need to consider it as an option.

This is because real estate has always had incredibly reliable returns, and being a physical asset, it will always be around in society. The key to creating passive income from property long-term is understanding what drives growth.

There are six market drivers that grow real estate value:

• Population growth
• Infrastructure growth
• Supply vs demand
• Economics
• Demographics
• Yield

This is explored further in tip number five!

TIP 2 – SET SPECIFIC AND ACTIONABLE GOALS 

Once you are across the money principals above, the next step on the retirement planning tips list is to set some goals! Take note of the words ‘specific’ and ‘actionable’ – we’re building an informed strategy here. There is no substance to saying “I want to have five investment properties in 10 years” with no action steps to go along with it.

With any investment comes risk, and when we talk about risk in real estate, we’re essentially gauging how willing you are to expose yourself to loss and how you adapt when things go wrong.

As property investors, risk is all part of the buying game, so understanding your risk profile is crucial to your overall success. Once you know where you sit on the risk scale, this will help better inform what kind of specific and actionable goals you should be setting for your retirement plan.

TIP 3 – SET AND FOLLOW A LIVEABLE BUDGET

Once you’ve got your goals set in stone, you need to create an action plan that you can live by each day. A budget need not be complicated, the simpler it is, the easier it will be for you to follow. A good way to start is to track every dollar you spend for at least two weeks – if you can do one to three months, even better.

You can do this on a rough piece of paper, or if you’re the king or queen of organisation then you’ll find joy in knowing there are heaps of budget templates out there to set you up. Once you know where your money is going, you’ll be able to spot patterns. Where are you wasting money? What areas can you cut back on to increase your expendable income?

Make budgeting fun! Yes, it’s important to plan for your retirement but do it in a way where you can still indulge in those things that mean most to you. The key to budgeting is identifying and cutting back on your frivolous spending that doesn’t help your financial situation at all.

TIP 4 – PAY OFF DEBT

To ensure a stress free retirement you need to eliminate all of your debt – both the good and the bad – before you put in your notice.

For example, if you have a home mortgage and/or consumer debts (aka bad debt), focus your efforts on paying these obligations off as a first priority.

Bad debt is one of the top factors that holds back real estate investors. A lot of people are living on borrowed money without creating a financial outcome from what they are borrowing.

Potentially one of the most important retirement planning tips is to eliminate bad debt. It is the cleanest way to fix your credit profile and surge ahead as a property investor. Rip up the credit card and get rid of the car loans and those pesky Afterpays.

This will free up the funds you need to supplement your super, add to your emergency cash and perhaps buy your first (or next) investment property.

TIP 5 – COMMIT TO BUYING INVESTMENT PROPERTY(IES)

As previously alluded to, property investment is the go-to investment vehicle for creating wealth when it comes to retirement planning because as we say, real estate is a marathon not a sprint. When it comes to retirement, you want a vehicle that delivers consistent results over the long term.

Residential real estate has provided quality returns over the past 20 years, matching Australian Shares and outpacing inflation. In fact, a report from the ASX and Russell Investments released in June 2018 examined the returns of long term investments.

It found from the 20 years to December 2017, residential investment property saw better gross returns than the share market.

Investing in property for the first time can be exciting and thrilling. It can also be very, VERY confusing, and not to mention scary. This is your future, there’s a lot of money at stake and understandably, you don’t want to stuff it up.

As a beginner to property investing there are some important things to remember and steps to take if we want to get off to the best start.

TIP 6 – LEARN TO IDENTIFY THE BEST MARKETS

If this is all new to you then exercise some patience and do some really great, diligent research. The right property for you to buy may not be in your street or even in your state.

Take some time to research real estate markets around the country. Remember the six market drivers we discussed in tip one that grow real estate value? Those are called macro drivers and they will help you determine what city or state to buy in. For example, cities with infrastructure developments will likely attract people to the area and lead to population growth.

Then there are also micro drivers, which tend to be seen more likely in suburbs or towns.

The micro drivers are:

• The owners established benchmark
• The new established benchmark
• Socio-economic
• Symbolic landmarks
• The ripple effect

For example, when looking at suburbs or towns, you want to be looking for the “worst” house on the best street, (owners established benchmark) this allows for an opportunity to add value to reach the market-rate of nearby properties.

Another great way to see if a micro market will grow is to determine average income versus average house price, in other words, if wages are high and house prices affordable, the property market can rise in value.

TIP 7 – BUILD A PROPERTY PORTFOLIO 

Now you know the benefits of property and what it takes to retire stress free by calculating your magic number based on your retirement living goals – great! But how do you go about building a property portfolio that reflects that?

Two things – you need the right team and the right strategy.

TIP 8 – ENROL A TEAM OF EXPERTS

The key to seeking advice is to get it from someone that is doing what you want to do. As much as you love your friends and family, unless they’re very savvy property experts who have spent years staying up to date with market behaviours and patterns then, it is likely that

their concerns and strategies will not make sense from an investor’s perspective today. Their advice may actually be the opposite of what an educated, experienced property investor would suggest.

In order to successfully use property as a wealth creation vehicle you need to assemble a six-star team to manage your portfolio. This team is comprised of:

• A property strategist expert (the captain of your team – a coach, mentor, investor and advisor who understands your big picture strategy)
• A finance expert
• An acquisitions expert
• A property management expert
• An accounting expert
• A financial planning expert

Most people end up as the statistic of 99% of investors who fail in property because they don’t ask experts for help. Our team of expert coaches and mentors can help you on your way to becoming one of the one per cent. The one percent of Aussies who are successful property investors.

SET UP YOUR RETIREMENT PLAN TODAY

Before you even buy your first investment property, you should have a plan in place that includes these retirement planning tips. You know, as the saying goes, if you fail to plan you’re planning to fail.

If you’re ready to get started in your real estate journey so that you can retire stress free, then sign up for our next free property investing masterclass. These high value events are packed full of information about where the markets sit right now, how to invest both wisely and smartly, and it’ll connect you with the TRC-Gorod team who have been dominating the property investing industry for over 20 years.

So you want to begin your property investment portfolio but you don’t know where to start? Join the rest of Australia! In today’s society there is still no avenue for teaching children and young adults about wealth creation and financial freedom.

Some may stumble across a business opportunity, or perhaps investing in shares, but our go-to vehicle is real estate. Real estate is a long game that has the potential to provide generational legacy wealth, if done correctly.

To set yourself apart from the 99% of investors who fail, you need to ask these 5 questions before investing in a house.

DO YOU WANT TO BE AN EMPLOYEE OR AN INVESTOR?

Do you have what it takes to be an investor? One of the greatest setbacks that most people experience from the education system is the lack of knowledge about how to become financially abundant. Many people enter adulthood without the understanding of taxes or even a basic budget.

School teaches you to be an employee – you trade your time for income. In comparison, investors dive into the real estate game because it allows them to make a steady and increasing income from their property portfolio.

We need employees, that is how society has been built to function. However, you don’t need to succumb to this ‘majority’ and the fact you are here reading this article is proof that you have what it takes to escape the rat race.

Property investment is a fantastic wealth creation vehicle because it is underpinned by the philosophy that profits are better than wages.

Trading your life for money is okay to some, but for the other side there comes a time in life when they’re ready to work less hours for someone else, to concentrate on other things they love while still getting paid.

The answer to this equation is real estate.

The goal of property investment

The goal of property investors in the market is to target optimistic returns.

If you fully accept that profits are better than wages, it will serve you well for a lifetime. Understand that companies, banks and institutions are all hunting profits and that they’re all hunting in the same safari park as you – the Australian property market.

Yes, learning how to create your own profits comes with time and experience but the payoff is worth it.

Why everyone doesn’t invest in property

If property investing is such a smart and lucrative profit making machine then why don’t more people do it? The reality is that for most, owning multiple properties simply feels out of reach.

On top of this, many don’t know where to begin when it comes to creating long-term sustainable wealth for themselves.

You must seek the knowledge you never got

You would think that in the developed country of Australia, wealth creation would be passed down from one generation to the next and these invaluable lessons would find themselves in the education system!

However, very few people obtain the necessary education to make sound financial decisions. For many Australians, the success that is ‘making money’ is entirely misunderstood and seems unattainable.

So, we actually have to seek the knowledge as we grow.

WHAT IS YOUR FINANCIAL FREEDOM NUMBER?

The next question you want to answer before investing in a house is, ‘what is your number?’ This is the big critical question that everyone needs to answer and that is ‘how much money do you need to die?’

Drilling down to specifics is vital in property investment. Knowing exactly how much money you need to live the life you want – whether that be a shorter working week, giving up work entirely, or being able to have one more holiday a year – will enable you to get there that much quicker.

Decide what kind of life you want. Work out how much it costs. Then you will know how many properties you need, at what rent rates and capital growth, to get there.

Setting yourself up for retirement

If you’re planning to rely on the pension and your superannuation when you retire then you can expect to only be surviving not thriving. The pension is $36,000 per couple or $24,000 if you’re single and that is topped up by about $523,000 (approximate super amount by 65) that will need to last about thirty years.

One in four pensioners are living in poverty. A huge factor that determines those circumstances is the security of housing. Owning your home has shown to be a game changer in retirement as the cost of rent is substantial for someone on a pension.

Of course, the more real estate you own, the more secure you will be in the long term. Setting yourself up with a real estate investment strategy now means you’ll have more bases covered in case things go pear-shaped. By paying down the debts while you’re still working, you’ll be able to focus on living off the passive income throughout retirement.

HAVE YOU SET A BUDGET?

It’s time to get really clear on how you’re going to make your ‘magic number’ a reality and the best way to do this is through budgeting. Budgeting is about getting a clear picture of your incomings and outgoings so that you can determine how much you can save and invest each week. The key here is to get really specific – if you’re wanting to save $100k for a deposit, then break that plan down into bite size steps.

A simple and effective budgeting strategy is the 50/30/20 rule which is the idea that 50% of your income goes towards your needs, (mortgage, bills) 30% of your income goes towards entertainment and 20% needs to be invested into income producing assets.

If that is too conservative for you, then another great budgeting strategy is the 50/50 technique which is where you live off of 50% of your income. If you can do this, you will end up in a place where you can budget for anything.

However, it is important to note that your budget must be realistic so that you aren’t left feeling deprived. A sustainable budget should still allow for you to enjoy the indulgences of life that mean the most to you. You want to set yourself up for success.

Budgeting is an invaluable tool that will prove very useful before you invest in a house and it will become vital once you own that investment property.

ARE YOU RESISTING TO LIFESTYLE CREEP?

Whether you just landed a new job with a higher salary, a promotion at work or even a paid off car loan – it is normal to immediately start spending more money. Maybe now it’s time to order a five course meal or sign up with a personal trainer: you’ve earned it!

If you have ever had an increase in money enter and leave your life then you have become a victim to lifestyle creep. With the increased income you’ve elevated your lifestyle situation to match.

If you are not careful, you may wake up one day and realise you now use 16 different hair care products, you own a second car and you live in an apartment you can’t afford.

Don’t let this happen to you.

How to reverse an escalating lifestyle

• Cut back on the subscriptions – Make a list of your recurring memberships, such as those for streaming, gaming or even dating! Weed out the ones you don’t need.
• Declutter your closet – Go through your clothes and be brutally honest about what you have not worn in the past six months. Get rid of it.
• Replace goods – If it’s possible, replace items that are currently too expensive for you, such as your car (petrol, maintenance) or the place you rent.
• Make mindful choices – Pay attention to where you money goes and ensure you think through a purchase in depth before buying.

ARE YOU PREPARED FOR THE LONG-TERM GAME?

Real estate is a long-term game. The longer you hold onto your property, the more money you will make as you ride the wave of market inflation.

There are too many investors that buy a property and expect it to go up $100k overnight. The property market doesn’t work that way. The saying ‘good things take time’ is relevant to playing the real estate game – the longer you’re in it, the more likely you’ll win it.

The key question you need to ask yourself before investing in a house is, “are you prepared to hold your property for more than just a couple years?” This is the basis to a successful property investment strategy, however it does come with some challenges.

Do the numbers

If you want to be able to hold onto your real estate for long enough to create significant wealth then you will need to understand the financials associated with it. At a basic level, you will need to be across cash flow, rental income, maintenance fees and taxes.

The next step is to ensure you have a significant buffer for unexpected expenses that may arise. Taking time to analyse your real estate and do the maths will ensure you’re prepared for every eventuality and can go the distance.

Rental return is key

Charging enough rent to cover your debt, expenses and to even save to renovate down the track is the ideal solution. This will allow you to hold onto your property for the time it needs to grow in value. It is therefore very important to make sure your rents can continue to increase each year.

The major factors that influence rents are:

• Tenants – Choosing tenants who earn good incomes and are able to sustain rises in rent is vital.
• Location – Ensure you buy in an area that is on the trajectory of growth to ensure there is always a demand for rentals.
• Liveability – If the area offers tenants things like modern, well-maintained services, great outdoor spaces, and convenient, high-end social outlets, people will pay more to live there.
• Being a good landlord – Respond to maintenance needs quickly and give decent notice for inspection tol help make your tenants feel valued. This will make them less likely to object to an annual rent increase.

Invest in your investment

If you’re in it for the long haul then it is important to look after your property. If you do not live close by, you will need to employ a property manager. Take your time to research companies and find one that truly cares about your investment success. Peace of mind that your real estate is being taken care of is invaluable.

ONLY THE EXPERTS CAN ANSWER YOUR INVESTMENT PROPERTY QUESTIONS

So there you have it, the 5 questions to ask before investing in a house. Do not be alarmed if these questions prompted a thousand more. It is said that it takes 10,000 hours to master a skill. No one is expecting you to become an expert after reading this article.

Any successful property investor understands that they don’t need to be an expert in tax law, location scouting or budgets, but they do need to know where to find the people that are experts in those areas.

This is where our team of coaches and mentors can help you on your way to becoming one of the one per cent. The one percent of Australians who are successful property investors.

If you want to start building your own team of experts, then come along to our free real estate investing seminar. This jam-packed two hour event will give you all the information you need to start out in property investment, and you will be able to ask questions to our specialist team.

Register now for the free property investor webinar

It is all well and good to have a property portfolio that delivers good capital growth and positive cash flow but the key principle that will validate your long-term success is asset protection for real estate. 

Protecting your real estate assets is perhaps more important than building them. Obviously we always hope for the best, but there are many things that can go wrong and when they do, you and your assets are at risk. 

Incorporating prevention measures into your investment strategy could be the difference between you continuing to build out your wealth or losing everything you own. 

WHAT IS ASSET PROTECTION? 

In essence, protecting your real estate assets is a means of shielding them from being used to meet creditor’s claims. 

Any business has risks and you need to make sure you are well prepared for anything that gets thrown your way. Here are just a few scenarios in which asset protection would be needed: 

• Market changes dramatically (just look at what Covid did to supply chains). 
• A customer going out of business meaning they’re unable to pay you.
• You get injured and are unable to work.

Asset protection will ensure that any business risk you may experience will remain separate from your family and your personal assets. 

To reduce that vulnerability, it is vital that you implement strategies to protect your property and personal wealth from potential loss of control. 

COMMON ASSET PROTECTION ASSUMPTIONS 

It is fairly common for people to think that they don’t have to protect themselves. It is within our human nature to assume that no one is out to get us. But to tell you the truth, if you own even just one asset, you are at risk of losing it. 

Assumption one: Only the rich protect their assets 

Contrary to popular belief, the rich have less of a need for asset protection because they have a larger capacity to pay the judgement and move on. Whereas an investor who has just started out in their journey would be much more susceptible to losing everything if they were to go up against the creditors tomorrow. 

Assumption two: If you’re sued, you can transfer ownership to a family member

Transferring your assets to your spouse and/or children, especially after something has happened, will not protect your assets. The court will follow the paper trail and it will be deemed that the family member is holding those assets on your behalf. 

Assumption three: Asset protection is expensive 

Protecting your real estate assets is relatively inexpensive. It is a lot cheaper than the legal fees associated with defending yourself in court. So set aside some funds in your budget and invest the time into building an asset protection strategy that works for you. 

CHOOSING THE RIGHT STRUCTURE 

A ‘structure’ refers to the way in which you choose to hold title to your investment property(ies). Most investors choose to buy under their own name – it is the least expensive and least complicated method, however it can leave your assets open to risk.

There are four main structures that are used within real estate: individual name, company, partnership or trust. Each structure brings their own benefits and downfalls to the equation. It is recommended that you seek professional help before determining which structure is right for you as they will all vary depending on your situation. 

Ideally you want to get it sorted from the beginning of your real estate journey because your chosen structure will impact things like debt restructuring and retirement planning.

Individual name 

This is the most common means of ownership. The benefits and drawbacks apply whether the investment property is held solely or jointly.

Pro’s	Con’s
Easy and inexpensive to set up.	Assets are completely at risk – there is no protection from creditors.
Simple to manage capital gains and rental income because it is included in investor’s personal tax returns.	When the portfolio shifts from negative to positive gearing this adds to the investor’s individual tax liability.
Tax effective, especially if the property is negatively geared.
Eligible for capital gains tax discount if you own the asset for at least twelve months.

Partnerships 

Partnership structures do have several advantages in terms of setup and ongoing costs. However, it does not provide any real asset protection. Whilst partners are not subject to directors duties, each partner does owe fiduciary duties towards one other. 

Pro’s	Con’s
Simple structure and relatively inexpensive to set up.	Taxed as its own entity that must be filed separately.
Tax is not paid, however income is distributed to partners.	Income distribution is limited to what is determined in partnership agreement.
Tax effective, especially if the property is negatively geared.	You do not have protection against claims.
If a claim is made against one partner, all assets are at risk.

Companies 

A company structure can provide you with good asset protection for your real estate. However, on the downside, they are a bit more costly to set up and operate. 

Pro’s	Con’s
Tax rate is 30% on profits (good for high-income earners).	There is no capital gains tax discount.
As a shareholder your liability is limited to your contribution to the company.	Setup and maintenance costs can be high – accounting and tax.
All profits have to be distributed equally among shareholders.
Losses must be offset against future income.

Trusts 

A trust is not a separate legal entity according to law. It is a relationship where a person (the trustee) is under an obligation to hold property for the benefit of other persons (the beneficiaries).

Trusts are a key strategy that real estate investors use to protect their assets. The beneficiaries do not own the assets which means creditors will have a difficult time making a claim against them. It also protects your assets against potential divorce of your children and grandchildren, keeping the assets within the family. 

A trust structure also benefits from the 50 percent capital gains discount. A tax downside to trusts is that it cannot distribute losses to beneficiaries. Any loss remains within the trust, and this can limit the benefits of negative gearing.

While trusts can be an effective strategy for asset protection, the finer details can be complex and there seeking professional advice is paramount. 

There are 4 main types of trusts:

• Discretionary trust 

The term “discretionary” in reference to a trust involves the powers that the trustee has in deciding which beneficiary(ies) receive the net income from the trust either annually or at one time, depending upon the terms of the trust.

The most common type of discretionary trust used is the Family Trust. This kind of trust will have a trustee which holds the asset(s) in trust for the benefit of the family members (beneficiaries).

For tax purposes, a discretionary trust generally provides the most flexibility when it comes to net income because the trustee has the discretion to distribute different amounts of income to different beneficiaries. Depending on the trust deed, a similar flexibility may also apply to the distribution of any capital gain to the beneficiaries.

• Unit trust

In a unit trust, the beneficiaries’ rights to income and capital in the trust are fixed. In other words, a trustee is required to manage the trust according to the number of units each investor holds. 

The beneficiaries in this kind of a trust are known as “unit holders”. There may be differences in voting rights, income and capital distribution rights, etc depending on the fixed interest each unit holder has. 

• Hybrid trust 

As you might imagine, a hybrid trust takes the best of both worlds (unit trust and a discretionary trust) and combines them to create a powerful and flexible tax planning vehicle. 

• Testamentary trust

A testamentary trust is a trust that is created by your will, it manages your affairs after you’ve passed on. 

Superannuation funds 

It has become increasingly popular for people to manage their own superannuation funds (SMSF) because it allows an investor to have full control of their retirement assets. If the goal of your property portfolio is to save for retirement, then adding real estate to your SMSF might be a part of your strategy. 

The concept is similar to other types of trusts, however this kind of trust is only meant to provide funds for the retirement of the trust members (the beneficiaries).

While having control over your own super can be appealing, it’s a lot of work and comes with risk. While it may protect your assets from potential creditors, you still will be personally liable for all decisions made and if you were to lose money through theft or fraud you wouldn’t have access to any compensation or the Australian Financial Complaints Authority (AFCA).

If an SMSF is something you are interested in, please seek professional advice from a lawyer and tax accountant. 

INSURANCE 

Insurance cannot protect you against every possible scenario but supplemented with the right structure, you can sleep peacefully at night knowing that you’ve got the best strategy in place to reduce the vulnerability of your assets being at risk. 

The main insurance type that would benefit most real estate investors is ‘landlord insurance’.

Landlord insurance

Landlord insurance is a type of home insurance that protects your investment property if it is destroyed or damaged. You also have the option to insure for things like loss of rent, tenant default and malicious damage. If you have leased any of your belongings to your tenants you can protect this with contents insurance. 

Insurance cover will vary by company so it is really important that you always review the relevant Product Disclosure Statement (PDS). That way, you can make sure the policy you’re purchasing covers the events you want protection for.

SPEAK TO AN EXPERT ABOUT HOW TO PROTECT YOUR ASSETS 

Now with this knowledge, you can understand and appreciate the importance of asset protection in regards to your wider investment strategy. The best way to know how to protect your real estate assets is getting the right help. 

Asset protection is not a one size fits all approach. Your strategy needs to be customised to suit your lifestyle needs which will require expert advice. 

With the right team you can develop and execute a master plan that will ensure your property portfolio is well protected. Come along to one of our free real estate investing seminars, ask our team questions and connect with industry experts that can help you streamline your real estate investment strategy. 

Register now for the free property investor webinar

As an investor, there are many different strategies that you can employ to generate wealth, and a strategy that is great for instant equity gains is subdivision. But, while it sounds like an exciting project to take on, how do you actually make money from subdividing land?

How to make money from subdividing land largely depends on how you choose to do it. One thing for sure though is that when done right, it can catapult your portfolio significantly in a very short time!

Here’s what you need to know about how to make money from subdividing land and what the process involves.

First, let’s look at the basics.

WHAT IS SUBDIVIDING FOR INVESTMENT?

Subdividing put simply, is to divide land into multiple sections that can be used for development or sale. Once a subdivision occurs, an investor can then place more than one property on the land driving up the value of the section from one dwelling on one piece of land, to potentially multiple properties.

 

HOW TO MAKE MONEY SUBDIVIDING LAND AS AN INVESTOR?

Subdividing property is a great way to boost profits. When you divide one property into two or more you’ve added value to the property simply by registering the new lots.

Once a subdivision has occurred, there are multiple ways that an investor can make money such as:

• Holding the lots and waiting for an upswinging market
• Developing them by adding another property
• Selling one of the properties to reduce debt on the remaining one
• Renting out dual (or more) properties to create cash flow and passive income

 

THE DIFFERENT TYPES OF SUBDIVISION

Strata title

Involves converting a single title into multiple titles e.g. splitting up a block of 10 units on one title into 10 separate titles. This increases the value of the properties and it allows you the option of selling each one off individually.

Granny flat

Not every state allows for granny flat construction, nor is it suited for every market. This is why it’s important to know the area you’re investing in very well.

Second property

Involves splitting a large block of land into two or more lots and then building a new property on the vacant land.

Raw land

A process that is much more involved and very capital intensive. Developing raw land requires not only a legal splitting of the property but also physically changing the use of the land.

 

SUBDIVIDING FOR INVESTMENT PROPERTY

Finding the right property to subdivide is key to succeed with this type of investment strategy. The first step is finding a parcel of land large enough to subdivide. Different suburbs may have different rules around what you can and can’t do so seeking advice early on could save you a lot of headaches in the long run.

Things to think about when you’re looking at land or different properties are:

• What is the position of the powerlines?
• Where are the neighbours located – e.g.; side by side or is it a corner block?
• Is it a busy road that could restrict construction?
• What trees or nature is around that could impact the subdivision?
• Are there things like bus stops, traffic lights, schools or crossings that could make subdividing tricky?

 

INVESTMENT SUBDIVIDING RELIES ON LOCATION

A quality location should have strong rent-to-income ratios where typical tenants have the cash to also cover a rental increase.

It’s likely that these locations are near you or that you’re even personally familiar with them. As an investor, you need to be open to looking at growth areas in a range of different locations. This is where a good property strategist or coach comes into play. They’ll not only help narrow down your search to a handful of potential locations, they’ll also reach out to local agents in those areas to get a better feel of the rental returns and demographic.

Ideally, you’ll want to look for neighbourhoods that have more of a live, work, play dynamic. These are areas where everything you need or want (entertainment, food precincts, culture, wellness and natural amenities) can be reached within 20 minutes of your property.

Then, there’s gentrification – this is where you could quite easily hit investment subdivision gold!

Location growth comes about through gentrification. Gentrification is the process of an area’s economics going up as more wealthier people move into the neighbourhood. This stimulates growth as they bring with them new money, subsequently attracting more housing, business and infrastructure.

The idea behind it is that wealthy people live where they want to live and they’re willing to pay more for locations that provide proximity, mobility and liveability. So, if you follow the activity of well-off owner-occupiers, you’ll know which areas are valuable for buying an investment property.

Here’s a great explanation on all six stages of gentrification and how to spot the process happening early.

GET THE RIGHT SUPPORT

Asking the question of how to make money subdividing land really relies on getting the right advice from the right experts. It’s a technical process that can quite easily go wrong, and because of this, you need to put together a team of educated and experienced advisors and mentors to help give you the facts, and a solid process and strategy in order to make substantial gains from subdivision.

This is what we like to call your six-star team, which consists of:

• A property strategist expert (the captain of your team – a coach, mentor, investor and advisor who understands your big picture strategy)
• A finance expert
• An acquisitions expert
• A property management expert
• An accounting expert
• A financial planning expert

 

They’ll help connect you with anyone else you’ll need to call into the planning process such as architects, town planners, the council and even a good lawyer. More detail on this is below.

MAIN RULES OF SUBDIVIDING

When it comes to subdividing there are many different laws, regulations, planning approvals and policies which unfortunately are not a one-size-fits-all. In fact, they can not only vary from the different states and territories, but also between different councils too.

Each subdivision will also be at the mercy of zoning requirements, land size and engineering standards.

The good news is that subdividing is a very common practice that takes place all of the time. With the right support as mentioned above, it really doesn’t have to be the stuff of nightmares – actually quite the opposite when you get to the other side and start to see the coin roll in, and all of your efforts paid off.

Like any property venture, there are of course tax implications which you can read about here.

SUBDIVIDING FOR INVESTMENT – HOW?

As mentioned above, location plays a big role in the success of a subdivision. On top of that, ask yourself the following questions to quickly spot an opportunity to force value through subdivision:

• Are there other subdivided properties in the area?
• Would residents choose your potential development?
• Is there a low supply/high demand situation?

YOU’VE FOUND LAND, NOW WHAT?

Next, you want to review local council’s Development Control Plan to check for:

• Minimum lot sizes
• Setback line locations
• Easement locations
• Building restrictions on location and size
• Zoning issues
• Access issues

Choose corner lots or battle axe blocks for the easiest development. Always make sure you run a feasibility analysis before committing yourself to the project.

WHAT YOU SHOULD EXPECT WHEN SUBDIVIDING

The following considerations comprise just a small portion of issues that will need to be addressed when planning a subdivision:

• Council contributions/requirements
• Extra power and connection costs
• Required amenities (e.g. off-street parking/sidewalk, etc)
• Tree removal
• Contamination concerns

AS AN INVESTOR, WHAT DO I ACTUALLY DO?

Subdividing a property is like running a business – there are a lot of moving pieces that you’ll need to be across, but thankfully there are people who can help you with the process. Once you’ve found a prospective property to subdivide and have done all of your due diligence it’s time to prepare your development application.

Here’s a list of professionals that could be involved.

• Conveyancer
• Council
• Building designer
• Urban planner
• Surveyor
• Engineer
• Architect
• Real estate agent

 

PREPARING YOUR APPLICATION WHEN SUBDIVIDING

Gather your skilled team and prepare your development application.

Here’s what you’ll need to do:

• Provide a copy of the certificate of title
• Give detailed layouts of the existing property both before and after proposed changes
• Meet with your team before the application is lodged
• Get a timeline of the process from council – be persistent if they are unclear, asking “in most cases, how long will it take to get a planning permit?”

Tip: Informing your neighbours about what’s going on could prove beneficial to relations in the future.

BEFORE LODGING THE DA

Before lodging the application, schedule a meeting with the council. Bring your urban planner with you if possible.

Hopefully, by this point you will have established a rapport with at least one of the council members – a move which may prove helpful in your discussions.

At the meeting, discuss the plans you have in place to see if they comply with the council’s guidelines. (If you’ve done your research well, this shouldn’t be an issue).

Finally, remain open to any suggestions that council members may have. As they very likely may reside in the area, they have a vested interest in the outcome, so consider your actions accordingly.

 

AN EXAMPLE OF HOW TO MAKE MONEY SUBDIVIDING LAND

Here’s an example of how to make money subdividing land from TRC-Gorod’s lead property strategist Sam Saggers.

“To illustrate the benefits of forcing value through subdivision, let me share a story with you.

Recently, my dad wanted to get a better return on his investment than the 3.75% offered by his bank, so he rang me for my advice.

As you might suspect, I suggested investing in houses as a means to increase his returns. I recommended that he purchase a property which he could subdivide and quickly realise a great return.

So, he did just that.

I helped him find the perfect deal in Mudgee, New South Wales. It was a two-bedroom, six unit development for $740,000 ($123,000 per unit) which had not been strata titled.

After strata is completed and all costs accounted for, the price per unit is projected to be about $230,000 each – an increase of $107,000 per unit!

That means he will gain about half a million in added value! Much better (and faster) than any gains on 3.75% interest, wouldn’t you say?

Needless to say, my father is thrilled with the outcome of his investment.

While this is fantastic, you don’t have to strata title a development to make money through subdivision. Simply splitting an oversized lot can yield a great return.”

STRIKING GOLD TWICE!

“My mum also wanted my advice, but she was planning to sell.

Her home in Gladesville in Sydney was becoming unaffordable, and as she was nearing retirement, she planned to use the proceeds to fund her lifestyle.

I told her I’d be happy to help her sell, but when I took a closer look at her property which was situated on a 1012 square metre block, I realised we could do something much better.

Her lot had been considered a standard size when she purchased it 30 years ago, however by today’s standards, it was quite large.

Checking with the local council we discovered that the minimum block size was 500 square meters.

As my mum’s house was in the back corner of the block, we were able to split the lot, create two separate titles and then sell the vacant half for $1.1 million dollars!

Now, rather than uprooting herself, my mum can stay in her long time home and fund her retirement!”

 

IS SUBDIVISION PROFITABLE?

As you now know there’s a lot to consider when it comes to how to make money subdividing land, but is subdivision profitable, the short answer is YES!

As outlined in this article, when you understand subdivision as an investor, as well as the different types of subdivision opportunities available to you, and what to look for in the right property and location, then you’re well on your way to making money from subdividing.

However, don’t forget you will require a team of experts to support you in getting to the finish line.

In fact, the truth is you won’t succeed as a property investor unless you have the right people around you. Especially when it comes to a technical investment strategy such as subdivision.

We run free real estate investing seminars designed to help you build strong foundations for your property portfolio – including how to choose the best people to help you.

Learn where the best markets are to start your investing journey and begin creating the financially free life you’ve always dreamed of.

Register now to join the next seminar near you.

As an investor, there are many different property investment strategies that you can employ to generate wealth, and

a strategy that is great for instant equity gains is subdivision. But, while it sounds like an exciting project to take on, how do you actually make money from subdividing land?

How to make money from subdividing land largely depends on how you choose to do it. One thing for sure though is that when done right, it can catapult your portfolio significantly in a very short time!

Here’s what you need to know about how to make money from subdividing land and what the process involves.

First, let’s look at the basics.

WHAT IS SUBDIVIDING FOR INVESTMENT?

Subdividing put simply, is to divide land into multiple sections that can be used for development or sale. Once a subdivision occurs, an investor can then place more than one property on the land driving up the value of the section from one dwelling on one piece of land, to potentially multiple properties.

 

HOW TO MAKE MONEY SUBDIVIDING LAND AS AN INVESTOR?

Subdividing property is a great way to boost profits. When you divide one property into two or more you’ve added value to the property simply by registering the new lots.

Once a subdivision has occurred, there are multiple ways that an investor can make money such as:

• Holding the lots and waiting for an upswinging market
• Developing them by adding another property
• Selling one of the properties to reduce debt on the remaining one
• Renting out dual (or more) properties to create cash flow and passive income

 

THE DIFFERENT TYPES OF SUBDIVISION

Strata title

Involves converting a single title into multiple titles e.g. splitting up a block of 10 units on one title into 10 separate titles. This increases the value of the properties and it allows you the option of selling each one off individually.

Granny flat

Not every state allows for granny flat construction, nor is it suited for every market. This is why it’s important to know the area you’re investing in very well.

Second property

Involves splitting a large block of land into two or more lots and then building a new property on the vacant land.

Raw land

A process that is much more involved and very capital intensive. Developing raw land requires not only a legal splitting of the property but also physically changing the use of the land.

 

SUBDIVIDING FOR INVESTMENT PROPERTY

Finding the right property to subdivide is key to succeed with this type of investment strategy. The first step is finding a parcel of land large enough to subdivide. Different suburbs may have different rules around what you can and can’t do so seeking advice early on could save you a lot of headaches in the long run.

Things to think about when you’re looking at land or different properties are:

• What is the position of the powerlines?
• Where are the neighbours located – e.g.; side by side or is it a corner block?
• Is it a busy road that could restrict construction?
• What trees or nature is around that could impact the subdivision?
• Are there things like bus stops, traffic lights, schools or crossings that could make subdividing tricky?

 

INVESTMENT SUBDIVIDING RELIES ON LOCATION

A quality location should have strong rent-to-income ratios where typical tenants have the cash to also cover a rental increase.

It’s likely that these locations are near you or that you’re even personally familiar with them. As an investor, you need to be open to looking at growth areas in a range of different locations. This is where a good property strategist or coach comes into play. They’ll not only help narrow down your search to a handful of potential locations, they’ll also reach out to local agents in those areas to get a better feel of the rental returns and demographic.

Ideally, you’ll want to look for neighbourhoods that have more of a live, work, play dynamic. These are areas where everything you need or want (entertainment, food precincts, culture, wellness and natural amenities) can be reached within 20 minutes of your property.

Then, there’s gentrification – this is where you could quite easily hit investment subdivision gold!

Location growth comes about through gentrification. Gentrification is the process of an area’s economics going up as more wealthier people move into the neighbourhood. This stimulates growth as they bring with them new money, subsequently attracting more housing, business and infrastructure.

The idea behind it is that wealthy people live where they want to live and they’re willing to pay more for locations that provide proximity, mobility and liveability. So, if you follow the activity of well-off owner-occupiers, you’ll know which areas are valuable for buying an investment property.

Here’s a great explanation on all six stages of gentrification and how to spot the process happening early.

GET THE RIGHT SUPPORT

Asking the question of how to make money subdividing land really relies on getting the right advice from the right experts. It’s a technical process that can quite easily go wrong, and because of this, you need to put together a team of educated and experienced advisors and mentors to help give you the facts, and a solid process and strategy in order to make substantial gains from subdivision.

This is what we like to call your six-star team, which consists of:

• A property strategist expert (the captain of your team – a coach, mentor, investor and advisor who understands your big picture strategy)
• A finance expert
• An acquisitions expert
• A property management expert
• An accounting expert
• A financial planning expert

 

They’ll help connect you with anyone else you’ll need to call into the planning process such as architects, town planners, the council and even a good lawyer. There is more detail on this is below, all alternatively, attend one of our property investment seminars.

MAIN RULES OF SUBDIVIDING

When it comes to subdividing there are many different laws, regulations, planning approvals and policies which unfortunately are not a one-size-fits-all. In fact, they can not only vary from the different states and territories, but also between different councils too.

Each subdivision will also be at the mercy of zoning requirements, land size and engineering standards.

The good news is that subdividing is a very common practice that takes place all of the time. With the right support as mentioned above, it really doesn’t have to be the stuff of nightmares – actually quite the opposite when you get to the other side and start to see the coin roll in, and all of your efforts paid off.

Like any property venture, there are of course tax implications which you can read about here.

SUBDIVIDING FOR INVESTMENT – HOW?

As mentioned above, location plays a big role in the success of a subdivision. On top of that, ask yourself the following questions to quickly spot an opportunity to force value through subdivision:

• Are there other subdivided properties in the area?
• Would residents choose your potential development?
• Is there a low supply/high demand situation?

YOU’VE FOUND LAND, NOW WHAT?

Next, you want to review local council’s Development Control Plan to check for:

• Minimum lot sizes
• Setback line locations
• Easement locations
• Building restrictions on location and size
• Zoning issues
• Access issues

Choose corner lots or battle axe blocks for the easiest development. Always make sure you run a feasibility analysis before committing yourself to the project.

WHAT YOU SHOULD EXPECT WHEN SUBDIVIDING

The following considerations comprise just a small portion of issues that will need to be addressed when planning a subdivision:

• Council contributions/requirements
• Extra power and connection costs
• Required amenities (e.g. off-street parking/sidewalk, etc)
• Tree removal
• Contamination concerns

AS AN INVESTOR, WHAT DO I ACTUALLY DO?

Subdividing a property is like running a business – there are a lot of moving pieces that you’ll need to be across, but thankfully there are people who can help you with the process. Once you’ve found a prospective property to subdivide and have done all of your due diligence it’s time to prepare your development application.

Here’s a list of professionals that could be involved.

• Conveyancer
• Council
• Building designer
• Urban planner
• Surveyor
• Engineer
• Architect
• Real estate agent

 

PREPARING YOUR APPLICATION WHEN SUBDIVIDING

Gather your skilled team and prepare your development application.

Here’s what you’ll need to do:

• Provide a copy of the certificate of title
• Give detailed layouts of the existing property both before and after proposed changes
• Meet with your team before the application is lodged
• Get a timeline of the process from council – be persistent if they are unclear, asking “in most cases, how long will it take to get a planning permit?”

Tip: Informing your neighbours about what’s going on could prove beneficial to relations in the future.

BEFORE LODGING THE DA

Before lodging the application, schedule a meeting with the council. Bring your urban planner with you if possible.

Hopefully, by this point you will have established a rapport with at least one of the council members – a move which may prove helpful in your discussions.

At the meeting, discuss the plans you have in place to see if they comply with the council’s guidelines. (If you’ve done your research well, this shouldn’t be an issue).

Finally, remain open to any suggestions that council members may have. As they very likely may reside in the area, they have a vested interest in the outcome, so consider your actions accordingly.

 

AN EXAMPLE OF HOW TO MAKE MONEY SUBDIVIDING LAND

Here’s an example of how to make money subdividing land from TRC-Gorod’s lead property strategist Sam Saggers.

“To illustrate the benefits of forcing value through subdivision, let me share a story with you.

Recently, my dad wanted to get a better return on his investment than the 3.75% offered by his bank, so he rang me for my advice.

As you might suspect, I suggested investing in houses as a means to increase his returns. I recommended that he purchase a property which he could subdivide and quickly realise a great return.

So, he did just that.

I helped him find the perfect deal in Mudgee, New South Wales. It was a two-bedroom, six unit development for $740,000 ($123,000 per unit) which had not been strata titled.

After strata is completed and all costs accounted for, the price per unit is projected to be about $230,000 each – an increase of $107,000 per unit!

That means he will gain about half a million in added value! Much better (and faster) than any gains on 3.75% interest, wouldn’t you say?

Needless to say, my father is thrilled with the outcome of his investment.

While this is fantastic, you don’t have to strata title a development to make money through subdivision. Simply splitting an oversized lot can yield a great return.”

STRIKING GOLD TWICE!

“My mum also wanted my advice, but she was planning to sell.

Her home in Gladesville in Sydney was becoming unaffordable, and as she was nearing retirement, she planned to use the proceeds to fund her lifestyle.

I told her I’d be happy to help her sell, but when I took a closer look at her property which was situated on a 1012 square metre block, I realised we could do something much better.

Her lot had been considered a standard size when she purchased it 30 years ago, however by today’s standards, it was quite large.

Checking with the local council we discovered that the minimum block size was 500 square meters.

As my mum’s house was in the back corner of the block, we were able to split the lot, create two separate titles and then sell the vacant half for $1.1 million dollars!

Now, rather than uprooting herself, my mum can stay in her long time home and fund her retirement!”

 

IS SUBDIVISION PROFITABLE?

As you now know there’s a lot to consider when it comes to how to make money subdividing land, but is subdivision profitable, the short answer is YES!

As outlined in this article, when you understand subdivision as an investor, as well as the different types of subdivision opportunities available to you, and what to look for in the right property and location, then you’re well on your way to making money from subdividing.

However, don’t forget you will require a team of experts to support you in getting to the finish line.

In fact, the truth is you won’t succeed as a property investor unless you have the right people around you. Especially when it comes to a technical investment strategy such as subdivision.

We run free real estate investing seminars designed to help you build strong foundations for your property portfolio – including how to choose the best people to help you.

Learn where the best markets are to start your investing journey and begin creating the financially free life you’ve always dreamed of.

Register now to join the next seminar near you.

Real estate is the perfect asset structure for wealth building, but it has to be done right – and that means having solid money management skills to back you as you make these major financial decisions. 

Some of these skills may seem obvious – like having a budget – but you’d be surprised how many young investors didn’t get to build this foundation of knowledge through their school or home life. 

You see the idea of having wealth is still very much stigmatised in Australian society, especially in the middle class. And yet who can truly say that life wouldn’t be easier if you knew you and your family were set up nicely to live the lifestyle you truly desire?

HOW TO BUILD YOUR WEALTH

Outside of having terrific money management skills, there are three basic principles to building wealth: Understanding money buckets, learning what grows your wealth vehicle, and knowing your number.

Understanding money buckets 

Money buckets are basically the means of how you grow and accumulate wealth. 

The issue we have in Australia is that a lot of people only have one money bucket, and in there they only put one thing – their wages.

Now we know that wages alone can’t create great wealth. Even if you earn a huge salary, it’s pretty rare that someone has ever ‘saved themselves wealthy’. That’s why we need to have other buckets filled with strategies or assets that accumulate wealth too. 

This could include:

Superannuation: Money we set aside that accumulates money with very little effort from us. The more contributions we make, the more money we make.

Tax: Most Australians pay too much tax and don’t apply for the deductions they’re eligible for. Good money management skills will ensure you get the most out of tax to top up your bucket.

Side hustles: Creating a second income, or side-hustle, is another potential income that will help you accumulate extra wealth. 

Shares: With good financial advice you can buy shares and get a nice dividend at the end of the year. 

BUT what will be your biggest bucket of all? Cmon, it’s real estate!

Learning what grows your wealth vehicle 

Let’s be clear, the vehicle you use to create wealth doesn’t have to be property. It could be shares, businesses – whatever you feel you have the money management skills to do well at.

If you’re here it’s likely you’re either already in the property game or looking to invest, in which case you need to understand what drives it to grow. Once you know that, you will know where and when to invest.

With property, there are six market drivers that grow its value:

• Population growth
• Infrastructure growth
• Supply vs demand
• Economics
• Demographics
• Yield

Basically if you can see population growth in an area where infrastructure is improving and expanding, where you know that people are going to want to live, then that’s a good place to invest.

Get to know what influences and grows your wealth vehicle. By doing this you will make investment decisions based on education and knowledge, not emotions and impulses.

Knowing your number

While most Aussies agree they want to retire comfortably, very few actually work out how much money they’ll need each month to reach that. 

The biggest mistake you can make is believing your super and pension will be enough to live the lifestyle you want. The pension number for a couple today is $36,000 per annum, while the average super balance at retirement is $128,000 if you’re male and $73,000 if you’re female. 

It doesn’t even take an expert to tell us that no-one is living the high life off those numbers.

Nail down how much income you need every month to live the life you want. Once you find that figure you can then start working towards achieving it.

Of course, in order to get there, you’re also going to need the best money management skills to keep you on the right path. 

10 WEALTH MANAGEMENT SKILLS YOU MUST HAVE

1. Say goodbye to instant gratification

Building more wealth is a long term game. Whether you’re buying an investment property or investing in shares it takes real time to grow assets.

A typical real estate cycle lasts anywhere from 10 to 15 years, and yet 99% of people fail in real estate in the first six years – less than a full market cycle! Why?

Well one of the reasons is they expect instant capital growth and strong rental returns, and when they don’t get that gratification they simply give up.

2. Know the difference between a need and want

Do you really need to buy a brand new $50,000 car – or do you want it? 

If you want to know how to build your wealth you should start with a little self reflection. The lifestyle you’re working towards through property investing is within reach as long as you’re not trying to live it too early on an income that can’t afford it. 

Don’t rob your own future by buying everything you want now. Focus on your wealth building plan and honing those money management skills.

3. Learn to automate your savings and investing

Having the right structure for your finances is crucial. One thing that can help keep you on top of your savings and investing is having automated systems in place so you don’t have to worry about moving your money around manually every week, fortnight or month. 

Money sitting in the bank these days is wasted. When putting together your finance plan ensure you’re directing the savings portion of your income in areas where that money will work harder for you like your buffer or offset account.

4. Understand the cost of debt and ownership

When it comes to real estate you have to consider more than just whether or not you can afford a monthly payment. Good money management skills means ensuring you figure out the entire cost of ownership before making a decision.

For instance, if you’re buying an investment property that is geared negatively, are the tax savings you’ll receive more beneficial to your financial situation and your goals than a neutral or positively geared property?

Remember there are a lot of costs you might not have thought about with property ownership such as legal fees, council rates and insurance. Here is a comprehensive guide on the financial commitments to investing in real estate.

5. Set goals

Every decision you make in your property investing journey will fall in line with your strategy. And your strategy? Well that’s based on your goals. So if you haven’t clarified what you want yet, how will you know when you’ve achieved it?

One popular goal setting strategy we use with our clients is the S.M.A.R.T. method, which is designed to help them narrow down what they want and what it will take to achieve their desires.

For example: “I will buy a second investment property by December 31, 2022, and I will negotiate the purchase price to be at least 10% below the fair market value.”

6. Learn to live within your means

One of the best and oldest money management skills is knowing how to budget. In fact, it’s not just knowing how to budget, but having the willpower to stick to it.

When creating a spending plan don’t set yourself up for failure. Consider your financial capacity, what your other life commitments are, and what you still want to enjoy on a regular basis. 

However, don’t forget the basic key of budgeting is to spend less than you earn, so if you need to cut out unnecessary spending in order to build your wealth – do it. 

Here’s another great blog on the five budgeting mistakes you might be making.

7. Be willing to make short-term sacrifices

Often life is about trade-offs. You have to be willing to give up something you want now – like that annual holiday overseas – for something better in the future.

An easy principle to work off? If you want an easy life later, work hard in the beginning. If you want a hard life later, take it easy in the beginning.

8. Seek out the experts

Even with the best money management skills you can’t build wealth alone. A lot of the time you’ll need the help of experts who can guide you through certain decisions and processes. 

In fact, you’ll need help from at least six experts – your six star team – if you want to make it through this long real estate investing journey. Learn more about that here!

Don’t forget, there’s no shame in asking for help when you need it.

9. Remove the bias

Don’t make assumptions about real estate before you look into it further.

Should you buy the new investment property or the older one? Well, ask a seasoned property investor and they’ll tell you that it depends on a lot of factors – your financial situation, your goals, the suburb’s postcode…

There are a lot of things to consider when managing your money and building your wealth and each of them will impact the success of your investing. Just don’t let bias around certain properties or locations push you to make poor money decisions.

10. Take advantage of opportunities

PAYG variations, negative gearing, renting out your principal residence – there are a number of tools and strategies you can use to grow your wealth.

Once you get your money management skills down pat, you’ll open yourself up to a lot more opportunities to get you one step closer to your ultimate goal. 

HONING YOUR MONEY MANAGEMENT SKILLS IS JUST THE FIRST STEP

Now that you know the money management skills you need to succeed as a property investor the real education can begin! 

Having the know-how around finances is just one piece of a much bigger puzzle. Building wealth through real estate takes a lot of planning and a core understanding of how markets work. Without a good team behind you to guide the way, it can be incredibly overwhelming to own property!

If you resonate with that at all, come along to one of our FREE property investing masterclasses. Our coaches and mentors have real life experience as investors and give you the tools, resources and knowledge to help move you through each phase of the investing cycle. 

Register now to join the next masterclass near you.

Tax isn’t often one of those conversations that give investors the warm fuzzies, especially when we’re talking about the 10 property investment tax mistakes to avoid!

But it’s important that property investors reframe their thoughts around tax. Owning real estate can actually be incredibly tax effective – in fact some might say tax is a secret weapon for property investing. 

You see, as investors there are a lot of things we can’t fully control – the market, interest rates, and yields to name a few. But one thing we can control? What we claim on our taxes. 

HOW TO CLAIM INVESTMENT PROPERTY LOSSES ON TAXES

The ATO provides a tonne of information about the rental expenses you can claim and how. 

Of course, if you really want to make sure you’re putting in place systems that shield you from the tax mistakes to avoid, then there are two major things you need – a depreciation schedule, and a complete record of your expenses.

Both documents will not only maximise your return at tax time but also make the entire process as efficient as possible.

Depreciation schedule 

A depreciation schedule is the holy grail when it comes to tracking your deductions. It’s basically a document that lists out item-by-item every single thing in your property. 

If you’re in an apartment or townhouse complex too, this can also include common areas that you have a share in like a BBQ area or a pool.

Take note though, this is not just something that your accountant can whip up or take a guess at. You need a professional business to organise a proper document for you. Don’t skimp on this because a) every cent counts, and b) the service is tax deductible anyway!

Records of every expense

One of the biggest tax mistakes to avoid is not having all of your paperwork together for the expenses you’ve incurred for the year. Every. Single. Expense. 

The one investors miss out on the most is when they haven’t structured their loans properly and therefore don’t have the correct splits, redraws, information and accounts for money that they’ve been using out of their offset when it comes to expenses paid. 

If you’ve used money out of your redraw facility to cover any property costs then you have to be able to show a receipt for it. The aim is to be able to claim that cash back again as soon as the financial year is over.

THE 10 PROPERTY INVESTMENT TAX MISTAKES TO AVOID

It’s unfortunate that so many property investors either leave thousands of dollars on the table that could have been used to grow their portfolios, or they make wrongful claims from a misunderstanding of tax deductions. 

It’s no secret tax is tricky to navigate. So even though the Australian Taxation Office (ATO) has their own list of tax mistakes investors often make, we’ve compiled the most common ones that you need to know about.

1. You’re not claiming enough

You’d be surprised at just what the ATO allows you to claim.

Installed new smoke alarms or security systems lately? What about garbage bins?

Fixtures and fittings valued at less than $300 can be claimed within the first financial year. Others may be claimed over a number of years.

Just to give you an idea…

Under the plant and equipment depreciation category, there are more than 6,000 different 

depreciable assets recognised by the ATO, including items like carpet, blinds, air conditioners, hot water systems, and ceiling fans. Each plant and equipment asset is assigned an individual effective life and depreciation rate.

2. You think your property is too old

Just because you have an older investment property it doesn’t necessarily mean there’s no depreciation in it left to claim.

Yes, your investment property must have been built after 1987 to claim capital credits for structural elements (e.g. ceilings, floors, walls, etc.), but it’s still possible to claim deductions for renovations completed after 1987, even if they were done by a prior owner.

If you’ve added new plant and equipment assets like stoves and carpets, then these are deductible and should definitely be claimed.

3. You miss deductions after renovations

Any items that have been scrapped after renovating, as well as the items that are replaced, can be deducted.

For example, if you discard tile and replace it with new tile or hardwood, the value of both the new and the old can be deducted.

4. You think that once a return is lodged it’s done

For property investors there’s a lot to consider when compiling your tax information so it doesn’t hurt to have another look once you’ve filed.

If you do look back and realise you forgot to claim something, don’t automatically think it’s too late to correct the mistake. The ATO allows you two years to submit an amendment on your tax return which starts from the day after your notice of assessment is sent to you, so this is definitely one of the easier tax mistakes to avoid.

5. You’re claiming the purchase cost of the land in a construction investment

Improvements to the land, including structural improvements are deductible but not the cost of the land purchase itself.

6. You’re claiming false costs

If you’re the kind of landlord who has the skills or know-how to DIY certain jobs, then it’s fair enough that you’ll probably undertake some of the maintenance or installation jobs yourself relating to your investment property.

While it’s beneficial that you can save a lot of money this way, the fact is that your time and effort are not allowable deductions because you didn’t actually incur a cost.

So, while the materials you purchased to complete the job are tax deductible, your physical labour is not.

7. You’re trying to claim personal interest

In terms of tax mistakes to avoid, this one’s a biggie. 

If you’ve taken out a home loan to buy both an investment property and a new car, you’re not allowed to claim a deduction for interest paid on the personal part of the loan i.e. the part that covers the car. 

This loan structure is actually a big red flag for the ATO when auditing, which is why we always suggest keeping your investment property loans separate from your personal ones.

8. You’re trying to claim extra travel expenses

While you might be able to claim travel costs while visiting your investment property, it’s not possible to claim that travel in connection with a personal vacation.

In other words, only the costs incurred that are directly related to visiting your investment property are deductible.

9. You’re doing the dodgy when allocating rental expenses

If you have a part-time rental (e.g. a holiday home that you also use yourself) you cannot 

claim deductions for the proportion of expenses that relate to your private use. You also can’t claim times if it was not genuinely available for rent, such as when used or reserved for friends or family.

If your holiday home is rented out to family, relatives or friends below market rates, your deductions for that period are limited to the amount of rent received.

10. You’re struggling with tax return preparation

Understanding tax structure can be complex. There are so many possible deductions (and a lot of tax mistakes to avoid) especially for property investors.

You shouldn’t miss out on potential gains that can be used elsewhere towards building your wealth just because you don’t have a mind full of knowledge on tax exemptions and the law. 

That’s why you need to work with a tax professional who is ideally a property investor themselves, and well-versed in the regulations surrounding real estate investments so that you can be sure you’re claiming everything you’re entitled to.

YOU’VE CLAIMED ALL YOUR TAX BACK…NOW WHAT?

Congratulations, you avoided those tax mistakes and now have some money back in your pocket to spend as you please!

Well, I wouldn’t take that a sign to pat yourself on the back for all your hard work and start buying things unnecessarily. In fact, if you’re a smart real estate investor, you’ll learn how to use that tax to actually pay for your properties. 

The other option is to use it to reduce the amount left on your loan – but I don’t just mean using it to make an extra payment. 

No, put it in your offset account and reduce your interest payable. Think about it, if you get $5,000 back every year in tax, after 10 years your offset account has built up to $50,000! 

Not only is that significantly less interest you’ve been paying, but when you’re ready you can then use that amount to either get more capital in the market or renovate one of your existing assets to create more value. 

THE RIGHT TEAM KNOWS THE TAX MISTAKES TO AVOID

A list of 10 property investment tax mistakes to avoid is all well and good but we all know how hard it can be to stay on top of all the facets of property investing, particularly in those early stages.

The best way to make tax time seamless is by having the right team to work with you. If you’re new to property investing and haven’t found that support system yet, the best place to start is at one of our free real estate investing seminars.

Come along for this high value two-hour event, ask questions to our experts and get to know key people in the industry that can help you streamline your investing strategy so that your money works better for you.

Register now to join the next seminar near you.