News < Back To NEWS

Hi Team,

This week I would like to concentrate on one of my favorite topics, property investment. But I need to start off by disclosing that as a builder I have done numerous personal developments, so I am not your average property investor and my opinions have been heavily influenced by my own personal experiences. However, I will try to outline some of the main positives and negatives about investing in property which must be taken into account along with your own personal circumstances before you embark on any sort of investment.

Most Australians love property and along with superannuation, owning property forms the backbone of Australia's wealth and prosperity.  It is commonly believed that property values double every 7 to 10 years and that we should all  "buy land because they are not making anymore of it."  However, the last 24 years we have seen a booming property market due to record low interest rates, easy to obtain bank finance and significant tax breaks for investors due to negative gearing. But this long running boom market has now run out of puff due to the banks tightening up lending conditions and a slowing economy. So, property prices have dropped by an average of approx 10% across the country in the last 12 months.

The last 12 months have strongly reinforced that investing in property is a long term game and that you need to hold a property for 10 to 15 years to see significant capitol gains. So, "don't wait to buy real estate, buy real estate and wait." The long term returns from an investment property are greatly affected by inflation, bank interest costs, land tax, rental agent fees and ongoing property maintenance costs. When all of these costs are deducted from the annual capitol gain of the property the actual investment return is considerably lower than most people think.

For me the big attraction to buying real estate is the security and sense of ownership I get from this type of investment. I have also always bought properties that had great potential for improvement. This has been my biggest advantage, being a builder married to an interior designer; I could renovate or re-build a property and add significant value to the asset. This type of property improvement or development became my serious long term hobby as well as a solid investment strategy.

As well as negative gearing their is another significant tax break from owning an investment property, which is the depreciation of the building and equipment over time. When you buy an investment property a depreciation schedule is prepared by a property valuer showing the value and time span for the depreciation of all buildings and equipment on the property. The annual depreciation value of the building can then be deducted from your income tax each year. One of the big advantages of investing in a newly built home compared to an older home is that the building value of a new home can be depreciated over the first 25 years of its life, which will give you a substantial annual tax deduction.  But with an older home (over 25 years old), only newly purchased plant and equipment (such as a new heating system) can be depreciated, so you get  a much smaller tax deduction each year.

For me the key to successful property investment is purchasing the right real estate. I have always bought properties that I would be happy to live in myself. This is often not easy and takes a lot of time and effort to find suitable properties. But I have found that using this filter made sure that the home was always easy to rent to quality tenants and also satisfied my sense of pride as the owner.

My only piece of advice about property investment is that you must be sure you have done your home work and that you fully understand the long term financial commitment  it takes to own an investment property for the long term. Locking yourself into owning an investment property can greatly restrict your lifestyle and spending options for many years, so you must be well and truly ready before making this potentially life changing decision.

Also; the next DDB Team Meeting will now be held on Wednesday 17th April and a Site BBQ will be held at Omar St, this Friday starting at 1.30pm, so please let all of DDB's subbies know they are welcome to attend.

Thanks for reading,
David