Beginners Guide to Investing Residential Property
Beginners Guide to Investing: Property investment alternatives
Different sorts of property often produce similar returns. But while most prospective property investors have undertaken their own home financing and can transfer this experience to similar housing, it is unwise to believe that other property investments have similar characteristics. If you are venturing outside housing for the first time for investment purposes, make sure that you understand the details of the new market and obtain expert advice if necessary.
Beginners Guide to Investing: Property management
Most real estate offices provide an excellent service by marketing for tenants, arranging for rent to be collected, fixing minor repairs and providing a useful summary for tax purposes at the end of the year - but they usually charge between 5 and 10 per cent of the annual rent for this service. If you have the time to undertake these services yourself then this can increase your return. But the call upon you, at possibly extremely inconvenient times, can be a heavy cost. In particular, if your tenants are turning over frequently (or are likely to so do), or if your particular segment of the rental market is prone to unusual competitive pressures (good and bad), the commission spent on an agent might be a sound investment.
Beginners Guide to Investing: Initial costs
Beginners Guide to Investing: On-going costs
Property as an investment has many benefits but it can be an expensive asset to hold. When calculating the return (and do make sure that you calculate it), ensure that you allow for the following charges:
The above costs are indicative of the types of expenses you will incur - but there may be others.
Beginners Guide to Investing: Gearing
Most costs associated with investment property are allowable tax deductions. Where the rental income does not fully cover the expenses, then this is referred to as negative gearing. Treat negative-gearing with care. You make money only when the net capital value of the property increases by more than the net negative out-goings. This is fine in a buoyant market, but can be disastrous in a down market. If uncertain, seek advice. And do not forget capital gains tax - the tax on the increase in the value of your property between when you bought it and when you sold it.
Beginners Guide to Investing: Investment
Finally - and most importantly - remember that property investment is fundamentally that - an investment. Far too many people are seduced into believing that their wonderful investment will eventually become a "second home" and select a house accordingly. Often, they can do better by investing in another area or even type of property, eventually realizing an investment gain and doing far better than they would from a purchase driven by emotions.
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