AVOIDING MISTAKES

With any business or investment venture down side risks should always be considered along with the upside. Initially it’s easy to get excited about the potential of a planned project and then when it comes to decision time, all of a sudden the adrenalin stops pumping and we start wondering, what if?

Knowledge can make the Difference

So it pays to be informed before embarking on a project to ensure you’re able to develop efficient emotional control which consists of a balance of wariness and confidence. In that balance you should have sufficient knowledge to enable you to separate fact from fiction.

For example what is a positively geared property? Is it more desirable than a negatively geared or a neutrally geared one? In most cases, no they’re not. You see, when positively geared properties are spruiked, it means the cash flow from the rental income exceeds the interest payments on the loan. These offers don’t take into account ongoing property expenses, which can mean your bottom line weekly cash flow can end up in the red.

Cheap may not be a Bargain

Today, in many cases these types of properties are older properties in regional or rural areas which may not offer strong prospects of capital growth or rental increases. Generally this can be the case, but from time to time we do find exceptions to the rule. Another factor to be wary of with cheaper properties is the socio-economic profile of your potential tenant. We find that newer properties in better neighborhoods will attract tenants who can produce references that will demonstrate a track record of reliability.

By buying a property that initially may be negatively geared, but you’ve purchased in a good growth area with a good rental yield, you may well find that with capital growth and rental increases in a short period of time the property could become positively geared.

Have a Plan

If your intention is to buy an investment property, then ongoing you should have a defined plan that incorporates details of a practical purchase price, good rental yield, correct tax structure, manageable property expenses, future potential of the area, ongoing tenancy, comfortable affordability level (remember market conditions can change), a pre-determined financial strategy that has the right loan structure, cash flow analysis and capable ongoing management for both the property and your finances.