There a four indispensable tactics to deploy when looking to make successful property investments in 2024.

Australia is undergoing an immense period of growth while experiencing a severe housing crisis, but that should not be a deterrent from beginning or growing a property portfolio.

To reap the full benefits of an investment property, now is the time to act before prices continue to rise.

To optimise the performance of your property portfolio, there are several factors to consider.

1. It’s all about the land

Land should be your very first consideration when investing in property. Land values appreciate, while the buildings on the land depreciate over time.

Search for a large block of land with proximity to the CBD. As land sizes in Australia continue to shrink and the urban footprint expands, this is the best investment to be made in Australia.

2. Population principles

To maximise returns, find an area with higher population growth than the general population. This will ensure the property value will continue to rise and at a much faster rate than the rest of Australia.

Don’t neglect to ensure the area has good existing and promised infrastructure, as well as multiple job hubs to guarantee sustainable growth over time.

Where there is population growth, there is demand for housing, and where there are jobs, there will be population growth.

Coomera in Southeast Queensland is the perfect example of an area with sustained growth, with a population growing at 10 per cent per annum (compared to Australia’s 1.3 per cent).

Located only 45 minutes from Brisbane’s CBD, Coomera has great existing infrastructure with a Westfield, train station, theme parks and schools. Coomera isn’t short of future-planned infrastructure either, with public and private hospitals, and a new M2 highway all under construction or soon to be.

3. Potential for a secondary dwelling

As our population continues to grow, we simply don’t have enough houses for people to live in, creating a desperate need for increased density.

With building companies hesitant to invest the time and money into apartment developments we need an immediate solution. The solution is secondary dwellings.

When searching for an investment property, an added bonus is a property with enough space to construct a secondary dwelling.

Not only will you earn an additional source of cash flow, but your property will provide some relief to the housing crisis.

4. Get the most out of your home loan

With all four of Australia’s biggest banks cutting their fixed rates, many have raised the question as to whether it’s worthwhile to switch to a fixed home loan.

To come out ahead on a one-year fixed rate loan, the RBA would need to raise rates once more and then remain unchanged for the next 12 months.

It’s highly unlikely anyone would come out ahead on a 12-month fixed rate today.

The RBA provides insightful data on how much the average bank customer pays on their home loan. Use this data to keep your bank honest.

Since April 2022, the RBA has increased its rates by 4 per cent, yet the average owner-occupier home has only increased by 3.37 per cent, and average investor home loan by 3.33 per cent.

Australians have been haggling with their banks for a better rate and/or refinancing to someone else who wants their business more.

Rental income is a fundamental part of a successful property investment strategy but there are three crucial factors th

at every investor should be aware of when it comes to maximising rent potential.

 

When it comes time to buying an investment property there is so much to consider, from capital growth potential, yields, to comparable sales.

But novice investors might overlook the importance of the state of the rental market. When it comes to investing in a property market you need to take a step back and consider the perspective of a tenant.

It is true what the news reports keep telling us, that the rental markets across Australia are at crisis levels and if you are looking to secure a tenancy, it is becoming increasingly difficult and expensive.

If you are a landlord, this is an advantageous time to increase rent and you are likely to have negligible vacancy times between tenants.

For a property investor, a booming rental market means their property is more lucrative, with a higher rental yield and strong cash flow on their property. But keep in mind that the rental market fluctuates greatly and is highly dependent on rental supply.

So, if you have a house near a new development of high rise apartments, the supply of rental properties will greatly increase at the end of the development and might bring down the demand for your property and the asking rental price.

When you are looking at the rental trends in an area, there are a few important factors to consider.

Here is a collation of the top rental trends to look out for are, and what they mean for your investment property.

Rental vacancy rates

Look to invest into locations that have less than 3 per cent rental vacancy.

This statistic means that at any given time, the average number of rental properties that are vacant is 3 per cent.

Investing in these areas means it is likely your property will have tenants leasing your property as well as a lower vacancy period between tenancies.

In fact, many areas we buy properties in have an extremely low rental vacancy rate of less than 1 per cent.

When investing into these areas you are likely to get a higher weekly rental income as well as minimise the rental vacancy times, which is important because when your property is vacant, you aren’t receiving income from your investment.

Percentage of owners vs renters locally

When buying an investment property, we look at the percentage of property owners and renters within the area and the street.

I use the 70/30 rule with a minimum of 70 per cent being owner occupiers.

The higher percentage of owners indicates that it must be a desirable place to live, providing greater potential for capital growth because there should be strong demand for your property when it comes time to sell.

This also means you will be able to achieve a higher rental amount because you know people want to live here.

For example, mining towns and areas that have a high number of fly-in fly-out workers would typically have a high rental population percentage.

Rental yields

The rental yield for the property is the amount of weekly rent achievable compared to the property’s value. It allows you to compare properties of differing rental amounts and purchase amounts.

Ultimately, the yield tells us the cash flow of the property and the ‘gearing’ of the property, which is also dependent on what debt an investor has against the property.

To achieve a better gearing, the higher the rental yield would mean the better cash flow. It is important to understand that the yield on the property is only the cash flow and is not a measure of the potential capital growth of a property.

The yield is a measure of the short-term gains from the property.

The world is full of advice on how best to invest in property but many supposed nuggets of wisdom are merely myths that need debunking.

Investing in property offers investors a chance to build wealth; nevertheless, it’s crucial to be cautious because misleading and deceptive information is prevalent, potentially leading investors astray.

Common myths and potentially dangerous advice on property investment abound, and we point out five of the most prevalent misconceptions

Myth 1: Only wealthy people can invest in property 

Having cash is helpful when purchasing an investment property but it’s not the be-all and end-all. Contrary to popular belief, most Australian property investors are ‘mum and dad’ investors: non-professional, small-scale investors.

Most investors own just one investment property.

Purchasing an investment property isn’t exclusive to having accessible cash flow; investors can use the equity within their home and refinance their mortgage.

Another strategy is rentvesting, which is a home-owning strategy where you rent a property to live in that’s right for your lifestyle, while you own an investment property that’s right for your budget. 

Rentvesting is increasing in popularity due to its accessibility and flexibility for first home buyers.

Myth 2: Investors should only buy new 

The notion that tenants exclusively prefer newly built properties and that older ones do not qualify for tax deductions is inaccurate. Older properties not only make attractive rental properties but also yield lucrative tax deductions.

Frequently, older properties come with a more budget-friendly price tag, offer greater potential for value enhancement, and are more readily accessible for purchase.

These properties may also currently house a long-term reliable tenant that the new owner may choose to retain. 

Myth 3: It’s best to limit purchases to familiar locations

Investors shouldn’t succumb to the notion that only familiar areas are worth buying in. 

Acquiring an investment property requires a distinct approach from buying a family residence.

When evaluating potential locations, it’s crucial to factor in elements like population and infrastructure growth, proximity to public transport and shopping hubs, as well as rental demand.

After researching these factors, the information found will often help investors decide on the type of property, tenant and location they’re after.

Myth 4: Property investment guarantees quick wealth accumulation

Investing in property has the potential to build wealth and create a strong long-term financial plan, however, it’s not guaranteed.

No investment scenario is a guaranteed way to get rich, regardless of the ‘foolproof’ or ‘never failing’ method often promised to investors. 

Investing in property is typically a long-term strategy that involves experiencing and preparing for the ups and downs of the property cycle.

Investors must be mindful of their risk tolerance; consulting an accountant or financial adviser is the safest way to maintain these boundaries. 

Myth 5: Don’t worry about claiming depreciation; it only raises your property’s cost base

Since property investment is a long-term strategy, investors should experience the benefits throughout the journey, rather than solely relying on them at the time of sale.

Claiming depreciation deductions can reduce a property’s cost base, however, claiming depreciation each year will improve both the investor’s annual cash flow and overall tax outcome. It’s also worth mentioning that a capital gain is never guaranteed, so, it’s best to claim the deductions along the way as a reliable way to optimise cash flow. 

This is general advice only. When researching or acquiring advice it’s important to ensure sources and professionals are appropriately accredited, failing to do so can result in dangerous and financially unstable outcomes. 

Property investors have much to consider when assessing the property market but four key factors stand out heading into 2024.

Migrants accounted for 78 per cent of Australia’s population growth in 2022, highlighting the important role international migration plays in the property market. (Image source: Shutterstock.com)

Successful property investing doesn’t just involve recognising a well-priced property or a prime location.

As investors, we also need to be mindful of broader factors that can play a role in the performance of our residential markets.

Below, I discuss four key macro-factors that are crucial in assessing a property market’s full potential.

Economic performance

A country’s overall economic performance has a crucial flow-on effect for residential property values.

The health of our economy determines job opportunities, wage growth and employment levels. This in turn shapes consumer sentiment and disposable incomes – the funds people have to buy, rent or invest in property.

The upshot is that it’s important to stay up to speed with the drivers of our economy.

Right now, we’re hearing a lot about how the world needs to transition to renewable energy and energy storage capacity. Australia is well-placed to help the world do this, particularly the more resource-rich states.

The International Energy Agency, for instance, has forecast that demand for lithium will increase as much as 42-fold by 2040. Australia has one of the world’s biggest lithium reserves, with most of its production coming from mines in Western Australia.

Other minerals such as cobalt, copper, and nickel are also expected to experience rapidly rising demand.

That’s good news for the mining sector – and the broader economy in general.

A growing economy translates to rising incomes, meaning more people investing in housing, which underpins value growth.

Population growth

Population growth is essential for a healthy property market. New residents mean more demand for housing, which supports rising values.

ABS data shows our population in Australia grew by 496,800 people (1.9 per cent) in 2022.

Migrants accounted for 78 per cent of this growth, highlighting the important role international migration plays in the property market.

Of course, new migrants do not disperse evenly around the nation. They tend to be attracted to areas with plenty of jobs, affordable housing and a quality lifestyle.

As well as looking at the overall trends in population growth, it’s therefore important to consider which specific areas are set to benefit from these demographic shifts.

Interest rates

Interest rates have an obvious correlation with demand in the residential market, in that they directly impact a borrower’s ability to purchase property.

However, much like population trends, rising interest rates don’t impact all Australians equally.

One factor investors often overlook when analysing the impact of rising rates is the significance of demographic composition.

Renters and young homeowners, who are likely to have large mortgages, tend to be impacted more by interest rate rises than older homeowners with smaller home loans (and in many cases, savings that are actually benefiting from interest rate movements).

In these cases, interest rates can have little to no impact on home-buying decisions.

Understanding a suburb’s demographics can help investors predict how rate movements are likely to affect local property values. A rate hike can hurt values in some locations (such as first home buyer areas), while having negligible impact in others.

Government policies

Changes to our tax regime or initiatives that impact housing demand or supply can have a profound impact on property values and investment opportunities.

However, this is an area where governments tend to tread carefully.

In 2019, former Opposition leader Bill Shorten went to the polls vowing to scrap negative gearing on certain properties. A resounding election defeat saw Labor hastily dump these plans.

Nonetheless, it pays to stay abreast of what’s happening in politics.

The future of the Australia Future Housing Fund, the government’s key policy to address the housing supply shortage,  hangs in the balance.

Right now, the Federal Senate is conducting an inquiry into the rental crisis, with the terms of reference firmly centred around renters’ rights.

Yet we know that 2.2 million family investors supply private rental homes Australia-wide.

For these mum and dad investors, the prospect of rent freezes or rent controls is genuinely worrying.

Given that only 3 per cent of tenants rent from a government housing authority, according to the Real Estate Institute of Australia, it’s a no-brainer that we need more private investors to support the rental market – not less. It would, in my view, be a much wiser step to consider initiatives aimed at boosting supply.

The bottom line

As you can see, there are many broader macro-factors at play in shaping a property market’s potential. However, as with most market drivers, these don’t impact all areas and markets equally.

Knowing how to critically apply these factors alongside the right data can be crucial in pinpointing which specific areas are set to benefit from these trends – and which are set to lose out.

Winter is traditionally a quiet period for the property market, but stronger sales volumes and unseasonably high buyer demand in some cities and regions suggest that sellers are in prime position in the coming months.

Sale volumes picking up in some regions

Property transactions in Sydney and Canberra were up 13.5% and 8.5% in June, compared to the same time last year. Perth and Hobart also recorded year-on-year growth in volumes.

So far, in 2023, national monthly sales volumes have been lower than in 2022. However, in the past few weeks, sales have been picking up. If this trend continues, sales in July will be higher than last year.  

The market was very strong in 2021 and 2022, so sales in 2023 are lower in comparison. However, compared to 2019 and 2020, sales are up.

This time last year, sales in all regions were down except Canberra. This suggests buyers are not feeling the winter chill this year and are out in force.

More highly engaged buyers are looking for property in 2023. Source: Getty Images.

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The volume of highly engaged buyers has increased

The number of highly engaged buyers interacting with properties on realestate.com.au increased by 0.6% nationally year-on-year in June.

In fact, over the past four months, we’ve seen the highest number of highly engaged buyers on the platform than at any time over the past five years.

Even during 2021, when the market was extremely strong, the number of highly engaged buyers was lower than what has been recorded over the past few months.

The regions driving the increase are the cities of Brisbane, Perth, Canberra, and Sydney as well as regional NSW, Queensland (QLD), and South Australia (SA).

However, not every capital city and regional area has seen an increase in the number of highly engaged buyers. Even so, because most regions have been experiencing lower listings volumes, the number of highly engaged buyers per listing is up on last year in most parts of Australia.

Five of the capital cities have experienced double-digit growth, with Perth experiencing a 38.8% growth in buyers per listing.

Even Melbourne and Adelaide, which have seen a decrease in the number of highly engaged buyers overall, have more engaged buyers per listing than last year.

Home prices have rebounded

Home prices have increased for six consecutive months. Having increased a further 0.3% in June 2023, prices are now sitting just 0.1% lower than a year ago.

Looking at the combined capital cities, home prices are now slightly higher than a year ago, up 0.06%.

Sydney’s median home value is 4.5% higher than its low point last year and is now just 3% below its peak recorded in February 2022.

Auction clearance rates remain robust

Auction clearance rates are 23% higher than they were at the same time last year and only 9% lower than in 2021 when the market was incredibly strong.

Sydney and Melbourne primarily dominate the auction market, and both have seen clearance rates above 60% throughout 2023.

The shortage of available properties on the market has caused a decrease in the number of scheduled auctions, but auction volumes are still higher in both cities than they were pre-pandemic.

In the coming months

July and August are traditionally quieter months with many buyers and sellers opting to hold off until the start of spring. However, so far this year we have seen some unseasonal trends across Australia that suggest buyers are not waiting for the warmer weather.

Property sales are up in Sydney. Source: Getty Images.

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The biggest issue currently facing the property market is the lack of stock, and with demand still high, there is limited choice for those wanting to buy.

Those selling, however, are benefiting from high buyer demand and low competition from other vendors, which is in large part why prices are on the up.

This article can be found: https://www.realestate.com.au/insights/unseasonably-strong-market-puts-sellers-in-prime-position/

Investment properties have been the nation’s popular choice for building wealth, but an expert advised prospective buyers to carefully consider these five factors before venturing into the real estate market.

Andrew Zbik, senior financial adviser for the financial advisory firm CreationWealth, highlighted the popularity of investment properties among Australians.

He cited data from the Australian Taxation Office (ATO) showing just over 2 million people in the country own an investment property.

Mr Zbik says the popularity comes from the ability for property to be highly leveraged, unlike any other asset class.

To illustrate this point, he provided an example of a property with an 80 per cent loan-to-value ratio (LVR).

In this scenario, the property is priced at $750,000, and the buyer makes a 20 per cent cash deposit of $150,000 while taking a loan of $600,000, resulting in an LVR of 80 per cent.

In contrast, when looking at shares as an investment option, he highlighted the maximum leverage achievable is significantly lower, ranging from 40 per cent to 60 per cent. This leverage is typically facilitated through lending arrangements like margin loans or warrants.

While property investing is the go-to choice for wealth strategy, Mr Zbik said there are also incorrect notions about the investment vehicle.

He said although there is a common belief that property is a “safe” investment due to its tangible nature, the expert noted it’s essential to consider that property values can indeed fluctuate over time.

Mr Zbik also acknowledged that while property may not be as volatile as share markets and fixed income markets, both asset classes tend to exhibit long-term capital growth trends.

To determine if an investment property aligns with one’s wealth creation strategy, the expert outlined five key considerations:

1. Time frame

According to Mr Zbik, investing in property requires a long-term commitment for significant capital gains.

“I generally recommend to clients that an investment in property needs a commitment of at least 10–15 years to see any meaningful capital gain,” he stated.

He cited historical data which showed property prices can remain stagnant for three to six years or even longer.

To maximise returns, Mr Zbik said it is generally recommended to hold onto the property for at least 10 to 15 years.

“If I have ever met a person who lost money investing in property, a common trend I have identified is that they held the property for under a 10-year period,” he stated.

2. Cash flow

Purchasing and maintaining an investment property involves various costs that must be carefully assessed, according to Mr Zbik.

He noted initial purchasing costs include stamp duty, conveyancing costs, lending fees and buyer’s agent fees, which can significantly impact a buyer’s budget and overall investment viability.

Mr Zbik also underlined the importance of factoring in ongoing costs, stating “owning an investment property is not simply about collecting rent and paying the mortgage”.

This includes agent’s fees for property management, letting fees when new tenants move in, council rates, landlord insurance, maintenance expenses, body corporate fees (if applicable) and potential land tax.

3. Negative gearing

While many people cite the benefits of negative gearing as a reason why they purchased an investment property, Mr Zbik said there are misconceptions about this strategy.

“Let’s get this right: if you purchase an asset that loses you money as the income does not cover the expenses, you can claim a tax deduction against other income that you earn.

“Your investment property is still ‘losing’ you money to own. Therefore, with such a strategy you are relying on capital growth to make the overall strategy worthwhile,” he stated.

When acquiring an investment property, the expert’s professional recommendation is for buyers to ensure that they are financially comfortable and capable of servicing the ongoing holding costs associated with such an asset.

4. Ownership

Mr Zbik underlined choosing the correct “entity” to own an investment property is crucial when buying.

“This will impact what your tax liability may be when you sell your property in the future,” he added.

For example, personal ownership subjects a property to the marginal tax rate, while company ownership incurs a 30 per cent tax without the benefit of the 50 per cent capital gains tax discount.

Meanwhile, trust ownership taxes beneficiaries at their marginal rate, which can go up to 47 per cent.

He also explained the tax implications for investment properties held within Self-Managed Superannuation Funds (SMSFs) vary depending on the fund’s phase.

During the accumulation phase, if the property is owned for less than 12 months, the capital gains tax is 15 per cent while it reduces to 10 per cent if the property is owned for more than 12 months.

However, during the pension phase, if the SMSF holder is retired and drawing an account-based pension, any capital gain on the sale of an investment property is completely tax-free.

5. Investment strategy

Mr Zbik emphasised the significance of developing a clear strategy when assessing the suitability of an investment property for one’s wealth creation goals.

Alongside the four considerations mentioned earlier, he also offered additional tips to determine if an investment property aligns with your wealth creation strategy:

• Assess your financial capacity to handle potential interest rate increases
• Maintain a cash buffer to cover rental expenses and loan repayments in emergencies
• If possible, time the sale of the property to coincide with a period of low personal income, such as retirement
• Seek advice from professionals like mortgage brokers, accountants and financial advisers to ensure the investment aligns with your overall wealth creation strategy