Property Investment - Frequently Asked Questions

Isn't property investing for high income earners?

Definitely not! Most of our clients are average people with average incomes.

The easiest way to buy an investment property is if you already have your own property now with at least 30% equity in that property. Providing you have this equity and you have a steady income of at least $40,000 per annum, it is highly likely you may be able to purchase a property from OzInvest with as little as $1,750 cash deposit.

Click below to hear Kathy Blahut, one of our Investment Property Consultants, discuss her experience with our clients.

Is property a better investment than shares?

Over the last 30 years, both shares and property have shown very similar returns. However returns is not the only factor to consider.

Risk is another major consideration. Share prices fluctuate much more than real estate prices. Even though both asset classes have performed similarly in terms of capital growth, shares have been much more volatile.

Another major consideration is leverage. What bank will lend you up to 100% of the valuation of your shares? None! Property allows you to borrow more of the value of the asset, so you do not need as much of your own cash to secure the full value of the asset.

When comparing these two asset classes, you must really compare the same values. Lets say you are able to purchase $100,000 worth of shares by borrowing $50,000 and using your own cash of $50,000. By purchasing a property with your $50,000 cash you may be able to purchase a property worth $350,000. At any given rate of capital growth, your property will provide you with a better financial result. You are making say 10%pa compounded on $350,000 or $35,000pa, and not 10% of $100,000, or just $10,000.

Click below to hear Kathy Blahut, one of our Investment Property Consultants, discuss why she prefers property over shares as an investment vehicle.

Who pays the costs of owning the property?

In the first year, the tenant will pay roughly 50% of the costs, tax benefits will pay around 25%, and you will pay around 25% as well. As the rental income increases from the property over time, these percentages move much more in your favour.

Hasn't shares outperformed property over the last 30 years?

The Australian Stock Exchange performed some detailed analysis of the reletive returns of shares and property. Over the last 30 years, they have been similar in performance. This is really not an either/or discussion. Over time, you should have both. However due to benefits of property investing like stability and leverage, property should form an investment foundation, then shares as a more discretionary spend after property portfolios are established. 

Does purchasing an investment property disqualify me from the FHOG when I buy my first owner/occupied home?

Please see the October 29, 2007 Blog post from this link.

Do I need a lot of cash deposit for a real estate investment?

If you currently have no real estate, you will need at least $35,000 cash deposit including purchasing costs. That is the bad news!

But the good news is that if you do not have this cash deposit but do have an income, the best way is to find a joint venture partner with equity in their current property. You can both go on the property title, split the costs, and jointly grow your asset base. If you have a good income base, you may be able to make several joint venture purchases with other asset rich people. Over time, you will accumulate substantial capital gain, and be in a position to purchase your own property.

When is the best time to buy an investment property?

As a general rule, you should always buy your property in a rising market. Somewhere in a capital city in Australia, the market is rising. Click here to read a short discussion of the benefits of a rising market. So now is the time. The correct question is; Where to Buy?

Click here to see our current rising market properties.

How do I make sure I buy a property that performs at or above the market?

The short answer is knowledge. The Internet is a source of information. Everything you need to know is available on the Internet for free.

OzInvest provides a service that allows you to purchase market priced investment property with a complete service that means you do not have to do any research if you do not want to. Many of our clients do complete due diligence on their purchase from OzInvest, and have found our properties to be as stated by us.

What is leverage, and how does it help me?

The definition of Leverage according to Dictionary.Com is "the use of a small initial investment, credit, or borrowed funds to gain a very high return in relation to one's investment, to control a much larger investment, or to reduce one's own liability for any loss".

In short, you can buy a much higher value investment and participate in the return of the higher investment value by using other people's money. As long as the investment returns and tax benefits are greater than the cost of borrowing the funds, you will make more money than if you did not borrow.

What is negative gearing, and how does it help me?

Negative gearing means that the expenses of the property are in excess of the income it derives. The taxation law in Australia allows you to deduct the excess expenses of the property against any other income you may have from sources other than this property.

Due to the taxation benefits of negative gearing, many property investors choose to borrow as much as possible for their investment property, thereby reducing the tax payable on their primary income source.

What happens if interest rates rise?

If your property is negatively geared, interest rate rises only affect you at the net cost after tax benefits. If you are on a marginal tax rate of say 41.5% including Medicare Levy, then the net cost to you is just 58.5% of the increased interest.

When interest rates are rising, generally rental income is also rising. This will help you compensate for the interest rises.

It is wise to have additional funds available to cover unforseen circumstances. If you are an equity buyer, an additional Line of Credit loan of up to 3 months costs may be an appropriate risk minimisation strategy.

What if my property is damaged by the tenant?

Landlords Insurance is available from many major insurance companies. For around $300 per annum, you can insure against both accidental and malicious damage, as well as Public Liability.

What if I get sick or become unemployed?

There are three options for you here:

1. Take Income Protection Insurance when you purchase the property;
2. Have up to 3 months costs in either a line of credit facility or cash; or
3. As a last resort, sell the property.

Click here if you wish to speak to one of our licensed Investment Property Consultants.