mrd

An astute investor tends to buy investment properties in those areas that offer higher consistent Capital Growth (and by default, a lesser rental return).

These properties are usually negatively geared, leaving a cashflow shortfall between rental income and outgoings; covered by tax savings and owner contributions.

Contributions from investment property owners are often the subject of misunderstanding by those less informed investors.

I believe building an investment property portfolio ought to be viewed much the same way as one would building a business; with a defined strategy to manage overheads and any cashflow shortfall.

Let’s look at 3 ways to attack this shortfall, so as to allow you to not lose sight of the main goal – Capital Growth!

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When researching an area in which to invest, the fundamentals that support its long term capacity to grow; and by grow I mean double in value every 7 – 10 years at least, is vital when making a well informed low risk investment decision.

Population growth is one of those factors that underlie and sustain an area’s price growth potential. Supply and demand will always be the major determining factor for price movement. So what we want to see is a place people want to live and are moving in droves creating a problem for councils and governments! New planning needs to take place, infrastructure spending is required and managing the growth in relation to urban development, transport, environment etc. is critical.

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As with most things in property investing you are dealing with a free and open market. Within this market the forces of supply and demand will always apply. Obviously, if there is a shortage of properties available for rent and an increasing tenant pool, rents will rise and vacancy rates will fall. While the rental market in general is very tight at the moment with insufficient properties available for rent there are isolated areas where this is not the case in the short term…

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A real life example of how investing has worked for us and can for you too…

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In life there are indisputable laws that we have to contend with.

There are laws of chemistry and physics, laws of nature and there are also financial laws.

If you fight the laws of physics you will lose every time. Have you ever tried to fight the law of gravity? It’s painful when you land with a thud! Gravity wins every time. NB: While the law of aerodynamics supersedes the law of gravity… it does not do away with it!

Did you ever try to grow a plant that was totally unsuited to the local climate? No doubt, you didn’t have much success! How silly would it be to mix two explosive chemicals together… and no reaction?

People drown fighting rips… but anyone can swim with the tide.

LAWS GOVERNING THE FINANCIAL WORLD:

As there are laws governing most things about us… so too it is with the financial world. Two obvious laws that I want to consider here are (1) Time and (2) Inflation. In my experience, most people fight these financial laws like the swimmer in the rip. They drown financially… but it does not have to be that way!

Once we accept that there are laws governing time & inflation, we can learn how to harness them to our advantage; it’s that simple! It can be like having the wind at your back, rather than running into a headwind.

Therefore, my strong suggestion is: “Quit fighting natural laws; rather learn how they work… and how to use them to your advantage”.

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BRISBANE’S housing price growth has broken the 20 per cent-a-year barrier.
The latest RP Data Rismark Hedonic Index found the growth figure for houses and units in Brisbane rose a combined 20.57 per cent in the year to November.

House values increased by 19.52 per cent in the year and units were up by a staggering 26.35 per cent.
Local agents say the strong growth figures will ensure the market remains active over the holiday period.
Many agents believe Queensland’s strong housing market will see sales continue right through the weekend.
This is despite the week between Christmas and New Year’s Eve traditionally being one of the slowest for the housing industry.

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Anyone holding out on purchasing a home, hoping the property market will ease, should be warned – a real estate expert warns it could double in the next five years.

Sunshine Coast leading agent and acting REIQ spokesman Tom Offermann said yesterday “there will be no easing in the market”.

“All indications are that our market will pick up in strength and will be very kind to property owners in three to five years,” he said.

“I would expect medium term capital growth rate of between 10% and 15% to continue, which will see a doubling of prices in the next five to six years.”

This would mean a small two-bedroom home in Maroochydore, which was on the market for $420,000, could expect to be worth close to a million by 2012.

While housing affordability was reaching crisis levels on the Sunshine Coast, Mr Offermann said there were many people around prepared to buy.

“A lot of people coming from other states and overseas find that homes in the $400,000 to $600,000 range within in 10 minutes drive from the beach very attractive at a price they’re willing to pay to enjoy the lifestyle,” he said.

Source: thedaily.com.au

When Peter Beattie said last week that if Australia’s capital was chosen now Brisbane would be the winner, plenty of Sydneysiders probably sniggered.

After all, Sydney snobbery still leads us to think of Brisbane as just a big country town. But those who know something about property investing share the Queensland Premier’s enthusiasm.PRDnationwide Research says south-east Queensland’s population growth – about 55,000 new arrivals a year – has led to a shortage of houses in inner-city Brisbane that should see prices continue to rise.

“Since January 1 this year, house prices have risen about 10 per cent across the board,” says Kyle Woodbine, principal of Ray White Wynnum-Manly in the bayside suburb east of the city. “We are in a mini-boom.”
According to the Real Estate Institute of Queensland, the housing shortage is good news. “Investors are returning to the market because, with upward pressure on rent they have expectations of a better return compared to what was achievable in the past,” says the institute’s managing director, Dan Molloy.

Capital growth has been strong all along the Gold Coast, with several suburbs topping 10 per cent a year for the past five years and Beenleigh and Eagleby bettering 20 per cent.

But according to the institute, north Queensland had the strongest growth last year, due to a mining boom led by high international prices for resources. House prices at Mt Isa leapt 34.2 per cent, Rockhampton was up 32.6 per cent, Emerald rose 30 per cent, Mackay increased 19.4 per cent and Cairns 13.6 per cent.

Source: Sydney Morning Herald

DWINDLING affordability looks set to force more first home buyers out of the property market in 2007, paving the way for an investor-led recovery. The tighter the rental market, the more scope investors have to raise rents. This is particularly beneficial for investors who bought during the upside of the previous property cycle in 2001-03 when capital growth was strong and rental returns were 3 to 4 per cent.

They have now held their properties long enough to experience the second phase of the cycle, when capital growth has slowed but rental returns are firming around 4 to 5 per cent. With improved cash flow, they are in a solid position to buy again and take advantage of the next full growth cycle. This cycle began in the second half of 2006 and will start to accelerate in 2007.

A change of trends in rents and interest rates will also influence this investor-led recovery. In 2006, rents rose and interest rates did too, so there was no impetus for investors to re-enter the market. In 2007, rents will continue to rise because of the growing first-home-buyer affordability crunch. However, it’s probable that interest rates will stabilise or, ideally, fall.

The Reserve Bank must take decisive action to reduce interest rates if there is to be a sustained improvement in these figures.In turn, lower interest rates will further improve cash flow, luring more investors back into the property market.

Source: theage.com.au

The article followed in the same vein as many regarding increasing rents and low vacancy rates. They showed the price of a 4 bedroom home in Brisbane increasing from $185k in 2001 (rent $245pw) to $360k in 2006 (rent $340). That’s a 95% increase in price and a 39% increase in rent. The Gold coast over the same period showed 100% increase in price from $189k to $378K (rent up 54% from 340pw to $370pw). In Caloundra 2 bed units rose from $176k to $372,500 (112% – who said that units don’t show capital growth!) with rents increasing from $155 to $230pw – 48%.

Michael Matusik was quoted as saying that the trend was set to accelerate – “we anticipate that up to 40% of households in urban Queensland will rent in the next 10 years or so. He also commented that with rising rents there would be an increasing number of people sharing accommodation. An interesting fact was that 80% of all property investors earned less than $75k p.a. You don’t need a huge income to invest.

Source: GC Sunday Mail