Can I Make Money from Real Estate?

It is a common question and one that I hear asked weekly and the answer is YES, you can make money from Real Estate.

I have been investing in real estate for over 30 years now, and as far as long-term investments go  – you really can rely on real estate.

I bought my first investment property at the age of 16 as I figured out capital growth patterns; this was something that was of great interest to me as I could see property increasing in value on a consistent basis.  Yes I’ve had some ups and down – the GFC being the biggest hit over the years but long term the growth has been very reliable.

Yes you need to do some research, yes you need some capital and yes you need someone to talk to that you can trust in the industry, as well as good financial advice.

So how do you actually make money – how do you get started..

1.     Have a plan

2.     Find an area that is showing signs of future capital growth

3.     Secure a property with location in mind, close to water is a fave of mine.

4.     Arrange competitive finance

5.     Tennant the property

The benefits

Property growth – ie an increase in the price of the property

• You obtain income from the property
• Any payments made by you (expenses) that are greater than the income from the property is classed as negative gearing, allowing you tax relief from this amount.
• Every 5-10 years inflation will rise beyond that of the current long term debt – allowing you to borrow more against this property to invest further into property.

 Money in – money out

• Every investment is seen as incoming money (usually rent) and outgoing money (expenses) here is how this works..
• “positive gearing” If the incoming money is greater than the outgoing money; This is called “positive gearing”
• “natural gearing” If the incoming money is equal to that of the outgoing money; This is called “natural gearing”
• “negative gearing” If the incoming money is less than that of the outgoing money; This is called “negative gearing”
• Example of negative gearing below…
  • Purchase price – $400k
  • 10% deposit
  • Borrowings $360k
  • Expenses – @ 6% $21,600 plus expenses (rates, taxes, management fees, maintenance etc) $6k = $27,600
  • Incoming money (rent) @ $400 PW = $20,800
  • Here we are negatively geared at $6,800 (tax deductible)
  • If the capital growth of this property is better than the loss (after tax relief) – you’re in front!!

 Examples of different types of investment and their returns

• High capital growth – lower rate of income
• Low capital growth rate – high rate of income (commonly seen in the mining sector of WA)
• Proposed future development areas

So in summary, Ideally you’re looking for a sound property in an area that is primed for growth – you’re looking to rent the property and after costs be at a naturally/slight negatively geared level with the property.

This means that as the property increases in value, and at the same time your debt decreases your holding of this property becomes stronger.

 

I would strongly recommend speaking to a financial advisor before doing anything, as they’ll advise you of what to look out for such as..

• Increase of interest rates and its impact on your investment.
• A fall in the market value

So – yes you can make money from real estate – just make sure you talk to someone in the industry first.

John Kemsley – Principal

0419 917 209