By Andrew Trim
Author of Real Estate Dangers
Many people assume property investors are rich and carefree.
This is far from true.
Most residential property investors are simply striving to create a better future for themselves and their families. They own one property – or possibly two – and rent it out in the hope that one day, with smart management and capital appreciation, they can use the value in that property so they don’t have to rely totally on government assistance.
Surely it’s a worthy endeavour.
There seems to be an endless number of experts who have written books about property investment. Whether the aim is to get rich quick or build a solid property portfolio, there is a book for everybody.
However, very little practical information appears to be available for the landlord or potential landlord. There are some simple and practical steps landlords can take when buying, renting and selling that will minimise the dangers and reduce stress.
Buying a property for investment purposes is an exciting and worthwhile venture. It is comforting to have investments in bricks and mortar.
When choosing your purchase structure, start by considering the taxation implications. For example, investment properties can be bought with vehicles such as trusts, superannuation funds, companies or under personal names. Each has tax advantages and disadvantages. Before purchasing, consult a good property accountant for the correct structure for your circumstances so you buy the property in the appropriate name. It can be expensive to change later.
That said, it’s more important to understand what you are trying to achieve as an investor. Some invest with a long-term view of security and wealth creation, while others are looking for a short turnaround and quick profit.
Sometimes, properties can be bought and sold for a profit within a short time. Some will need renovation, others rezoning or construction work. These ventures are often called ‘flips’. People who successfully flip many properties over an extended period are experienced and careful. They regard the profits as a primary source of income rather than as supplemental income. It is more of a job than an investment.
Inexperienced investors who attempt this quick buy and sell frequently fail, with the process often ending in tears. These investors buy without enough research or experience, and find the costs are higher and the return far lower than expected, leading to quick losses rather than gains. The losses in this sort of venture can come hard, fast and large. In a booming market, many people move into the business of flipping, only to see their profits evaporate when the market turns. If you’re a short-term investor, be careful, do comprehensive research and start small.
Looking for short-term capital gains is more speculation than investment. Good long-term property is just that – an investment.
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