(First published in Australian Doctor Magazine - March 2021)
OK, it’s not necessarily the kind of statement that will come as a revelation to doctors, but the transformatory power of the concept remains unquestioned.
It’s the same concept behind the need to establish regular financial and strategic reviews of your investments.
Done regularly, this will help you to keep focused on identifying opportunities to maximise the value of your hard-earned income.
For many, investment in property is often the first consideration. But in these times of COVID-19, the future of investment property is a little complex.
Firstly, we need to know if there’s still a property bubble and is it going to burst?
There can obviously be no guarantees, but PMC Property director James Freudigmann says: “Property is part of the Australian psyche, everyone wants to own a property and most people if you talk to them at a friend’s place or a BBQ, are experts.”
“But the markets move at different speeds, have differing dynamics and have a number of other factors that influence popularity and growth.
“Right now, the Brisbane housing market as one example. It’s in a significant upswing with demand far outweighing supply and while the market was poised for this growth prior to COVID-19, with the increased interstate migration it has put more pressure on the demand/supply curve.”
Supply is low and demand is high, so it is the storm for growth.
He says in terms of a bubble, funds are available at the lowest rates he has seen in history.
“We don’t believe this is a property bubble, instead this is a condensed growth phase of the property market cycle that may continue for 6-12 months before stabilising slightly to a more sustainable growth phase.”
The second question is given the importance of location, location, location, are the rich in the cities buying up property across rural Australia now that they can work from home?
Mr Freudigmann’s answer is that COVID-19 and the “flexibility” this has brought to a large number of professions has resulted in a significant increase in demand for non-city locations.
“The strongest demand however has been driven towards the coastlines where people have realized they can have the opportunity for a coastal lifestyle rather than the rural inland areas.”
He adds a qualifier.
“It will be interesting to see how long these areas continue with the demand and growth phase as a number of companies are now looking to have their teams back in the office for a minimum of a few days per week which may shift the dynamic back towards the capital cities.”
So, what kind of homework should you do when it comes to investment property?
We suggest with starting with five key property strategies to control the risks, maximise after tax returns and to protect and grow your wealth.
1. Choose the right structure
Asset protection and tax effectiveness are important for investment growth and wealth protection.
So, do you invest in own name or in an investment trust or a company?
Trusts are crucial for asset protection to shield you from potential creditor claims. They also provide important estate planning benefits for the family especially for children;
There are also additional taxation benefits.
But also choose the right structure to maximise your after tax income, the annual savings and compounding benefits can be significant over the long term.
A discretionary trust is not always the best option; hybrid trusts can be effective for negatively geared properties and depending on the state of purchase, a company or individual might save you more on land tax.
2. Structure your property loans tax
Try to avoid mixing the purpose of your property loan(s) between investment and personal use.
It is generally good advice to maximise deductible debt and minimise non-deductible debt.
3. Maximise available deductions
You should firstly minimise potential ATO audit risk by keeping appropriate records including photos of pre and post repairs and renovations.
But you can maximise depreciation by engaging a quantity surveyor.
Many investors miss out on significant depreciation claims for capital items such as building costs, fixtures and fittings, kitchen and stoves, air-conditioning and other household capital items.
The ATO will also let you recoup lost depreciation claims for prior years.
4. Seek advice from a property consultant
Buyers agents and property consultants are well equipped to assist you to find quality properties in high growth locations and can also assist in negotiating the purchase of homes in a heated market environment.
5. Prepare a budget projection to help you plan ahead
The earlier you plan, the greater the likelihood that you will meet your retirement goals. The power of leverage/borrowing combined by a quality multiple property investment portfolio and well-managed cash flow will help you get there sooner.
These projections help you to manage the risks, they help you to review cash flow, monitor debt equity ratios, borrowing capability, plan for changes in interest rates and track how you are going against your plan.
Take charge of your property investments to ensure they are well positioned for the road ahead.
At least every three months, you should reflect and measure the performance they are delivering.
Too many times we see professionals retire who haven’t spent the time during their career to determine how they will fund their retirement years.
This can mean them having to work well into their later years just to get by.
If you start early, you can make the most of your property investments so it can be a big nest-egg for your future.
Yes, it’s about prevention.