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The 9 golden rules of property investing

The nine golden rules of property investing are a set of simple yet powerful strategies that can help you identify a great investment.

Read on to learn more about them – they could possibly help you uncover your next ‘golden nugget’.

1. Pay the right price

Buy low, sell high – sounds simple. Yet many investors fail to do their due diligence before signing on the dotted line. Using tools can give you an insight into market trends and an indication of the current market climate. Also, finding out what others have paid for the same or similar properties can give you a more accurate baseline for making an offer. The moral? Do your research and never overpay again.

Many investors fail to do their due diligence before signing on the dotted line.

2. Infrastructure

If the adage ‘location, location, location’ is true, then it definitely applies to existing or potential infrastructure near a property. Always evaluate a potential investment property’s access to freeways and public transport, and research if the area is slated for new investment and development down the road.

3. Add value

Buying a fixer-upper has historically been a good investment strategy. For example, installing a bright, new kitchen may cost you $25,000 out-of-pocket, but could potentially increase the value of your property by far more, while possibly giving you a substantial tax deduction as a bonus.

Read more: Claiming depreciation on your renovations

4. Don’t follow the herd

When a market is heating up it is actually the time to stand back and question the mentality of the herd. Remember that the real estate market goes through cycles; the smartest investors tend to jump in before everyone else does, not after. The best option is usually to buy at the low point of a cycle than when a market is surrounded by hype.

The smartest investors tend to jump in before everyone else does.

5. Follow the leader

While it doesn’t always pay to follow the herd, it can pay to follow the leader – especially if they’re someone you respect and they have a proven track record in property investing, such as real estate billionaire Lang Walker or Harry Triguboff.

6. Have a strategy

Always consider the land tax, negative gearing and capital gains tax implications before buying an investment property to make sure everything fits with your goals. It’s a good idea to have your advisor go over your current financial situation to help ensure that you have the right investment plan in place, now and in the future.

Always consider the land tax, negative gearing and capital gains tax implications.

7. Do the numbers

Even if maths wasn’t your favourite subject in school, always take the time to understand the financial impact of purchasing a particular property.

For example:

  • What is the tax implication of stamp duty on the property?
  • Will claiming depreciation affect the capital gains tax when you sell?
  • How are selling fees treated for capital gains tax purposes?

While these are tricky questions, make sure you know the answers before buying an investment property.

8. Don’t believe the hype

In the excitement of buying a new property it can be easy overlook the fact that property doesn’t always go up. A great example is: if you gear into a property with a 5% deposit, the value needs only to go up by 5% for you to double your money; on the other hand, if it goes down by the same 5%, you’ve lost your equity.

9. Sometimes the land is free

It’s very hard to lose money in property when you get the land free. After the GFC, we discovered that some of our clients had bought properties at close to or less than the original construction cost.

It is important to remember in these cases that it may take a while for property values to rise again, but they can and often do.

Now that you know the nine golden rules, it’s still a good idea to consult with a trusted financial advisor to make sure that a property fits with your investment goals.

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