Why is it so important to get your strategy in place before investing in property?

Why is it so important to get your strategy in place before investing in property?

Property is considered a good investment because it tends to have less volatility than shares and generally maintains its value even when other assets decline. It has the potential for capital growth (an increase in your property’s value over time), attracts considerable tax benefits and can offer a steady income through rental returns.

However, every investor knows there are no guarantees when it comes to the property market, which always functions in cycles with periods of growth, stagnation and decline. Seeing a return on your investment is often a long-term proposition. And that’s why it’s so important to get your investment strategy right from the outset.

Where to start

  • Sound property investment strategies begin with research. The first things you’ll need to do are crunch your numbers and establish your financial risk profile. Make sure your intended investment makes financial sense for you and that the return generated is comparable to other investments, like shares.
  • Delve into the market. Once you’ve determined your finances will support investment, start researching property markets in more detail. Not every property enjoys capital growth so look for areas where population growth and housing demand will outstrip supply to ensure prices go up and not down. And remember you don’t need to buy a property close to where you live.
  • Look for pockets. No two areas are alike in the property market. Look for a pocket that’s enjoying more capital growth potential than others – this can change from street to street and suburb to suburb. Properties with access to public transport, shopping, parks, schools and hospitals in up and coming areas are a good bet. You’ll need to make sure your choice will be attractive to potential buyers when it comes time to cash in on your investment.
  • Drill down further. Next, research the specific property you think you’ll buy to make sure you’re not paying too much. Get in an independent valuer and compare recent sales of similar properties in the area. Then negotiate hard for the lowest price you can.
  • Don’t stop researching. Once you’ve purchased your investment property, review and assess it each year to make sure it’s still performing well and aligning with your investment strategy.
  • Get expert advice. Consider consulting a qualified professional for an honest assessment and advice. Engaging a team of experts at each stage of the investment journey will reduce your risk of making costly errors.

Potential strategies

  1. If you’re after good capital growth, you’ll want to consider a buy and hold strategy. This is a long-term strategy of holding your investment for a minimum of seven years until the property matures. How much your property will appreciate is subject to a number of factors, including location, property type, timeframe and at what stage the property cycle is currently in.
  2. Negative gearing allows you to reduce your taxable income while building wealth through capital growth. If you make a loss on your investment, you can claim a tax offset on your income and lower your tax bracket. Any losses should be regained once you sell your investment. This is a good strategy if you’re a high-income earner looking for smart ways to grow your property portfolio.
  3. If you want to mix up different kinds of assets, a property trust may be the strategy for you. It allows you to buy an interest in a professionally managed portfolio, just like shares. Your original investment stays with the trust until it ends and the properties are sold, then you take a share of proceeds.

Chat with us about your investment plans today. If you need access to reliable property market data, ask us for assistance. We can also refer you to the right people to assess your tax position, legal requirements and more.