The Australian real estate market is worth a whopping $6.5 trillion.
Have you ever thought of investing in Australian real estate, but aren’t sure where to start?
It might seem daunting but there are some simple steps you can take right now which will get you on your way – and it’ll take you less than an hour of your time.
Property investing can be complex, but with the right tools and information at your disposal, the world is your oyster.
Unlike other investments (such as shares) property investment is fairly simple to understand, tends to be less volatile and it’s also an investment you can physically see and touch.
As long as there is demand for property, you’re in for a good chance of realising solid growth from your investment.
It’s a no-brainer, right?
Leaving hard-earned savings sitting idly in a bank account often isn’t the best option – it can be better to invest it and give it the opportunity to skyrocket.
Here are some helpful tips which you could use to try and make some money from property investment.
4 ways to make money through property investment
These are the four different ways (or strategies you can use) to make the best profits from a real estate investment:
1. Capital growth
The first way you can make money in property, and this is probably the most common way in Australia, is what is called ‘capital growth’.
To put this really simply, this is the concept of buying something at a low price and then selling it at a higher price.
The whole goal of capital growth is to purchase a property and then have it increase in value over time, then selling it or even borrowing against that growth in order to access that money.
This is a particularly popular strategy in Australia because so many investment properties are negatively geared (meaning the rent they bring in doesn’t cover the cost of the mortgage).
2. Cash flow
Cash flow is the income you receive from owning and renting out your investment property. In other words it’s the rent your tenants pay to you.
As mentioned above, most investment properties in Australia have an income which doesn’t cover an investors’ expenses, but that positive cash flow is the ultimate goal.
If you’re able to own an investment property which you can rent out and which covers your mortgage, council rates and any real estate management fees, you’re laughing because your investment is paying for itself.
3. Tax benefits
You can also make money through property investment with tax benefits.
Because a property has losses associated with it, such as depreciation, you might be able to claim the lowering in value on your yearly tax return as a ‘loss’.
You might find that you can get a tax refund which compensates for any money lost on being negatively geared on your investment (meaning you break even), or in other cases you could even get a larger tax refund than the amount of money you have actually paid out every year… so you’d actually be earning money off your investment as well.
4. Accelerated growth
Accelerating the growth in value of your property can be done in a few ways, and can speed up your return on investment.
Other people might refer to this as ‘flipping’ a property or ‘adding value’.
- Renovate or refurbish the property
- Add an extension to the existing building
- If you have a large plot you could subdivide and add a second property
Each of these things positively influence the property value over a short term, meaning you could then either rent it out for more money, or sell it for more than you bought it for and make a quick return.
I want to invest in property. Where do I start?
So, now you know how you could make money on a property investment, you’ll want to know how to do it. Here are some easy steps you can start taking today to begin your property investment journey.
Step one: Work out your budget
The best place to begin is to work out how much you can afford to spend on an investment property.
Once you know your limit, and decide how much you want to spend, you’ll be able to look for properties which fit your quota.
Step two: Research, research, research
You can’t do too much research before embarking on property investment. You’ll want to find out exactly what type of property you want to buy, where and for how much. Not only that but you need to also.
- What kind of property do I want to buy? Do I want to buy an apartment, house, duplex?
- Where do I want to invest? There are many property data sources which are available at your fingertips. You can go to a property data website such as , or for all the suburb and property data you need to make the right decision on investment location. Remember, you need to invest somewhere which makes good investment sense and gives good returns, not just in a nearby or popular suburb.
- What income or cash flow can I expect? What am I expecting back from this investment? Am I striving for a positive cash flow for example? Can I afford to compensate for the difference if your rent doesn’t pay for your mortgage? Will investing in property help me achieve my financial goals? ?
- Do I want to buy something new or something I can renovate or build on? Deciding whether or not you want to accelerate your growth (and invest more money into it in the meantime) will help you figure out what type of property you should be looking for.
- What’s my plan B? This is a tough question because everyone’s situation is different however you need to ask yourself – if my circumstances changed unexpectedly due to an injury, illness or job loss, or your tenant stops paying rent, what would I do? Do I have protections in place like insurance to ensure you can keep up with the loan repayments?
- What is the current market like? Timing is important for property investment. So you want to make sure you know before jumping in with both feet.
Step three: Decide your investment strategy
You know what the different investment strategies are now (see above) and you need to choose one before going ahead with your property investment journey.
Think about your financial goal, or what you want to achieve with property investment, and decide which strategy would best help you get there.
A different strategy will direct you towards a different type of property so this also prevents you from flitting between looking at different types of properties which would need a different strategy.
Pick one, and stick with it.
Step four: Get pre-approval
When you’ve done your research, you know exactly what you want to buy, where you want to buy, and how much you can spend, now you need to go to a lender, or to your mortgage broker, for a pre-approval. This means when you do find the right property, you can make an offer straight away.
But I can’t afford to buy a house, can I still get into real estate investment?
Here are three ways how you can do it:
1. Fractional investing
This form of investment means there are lots of investors each chipping in a little bit to collectively form a big lump sum, enough to buy a house.
A modern example of this is the BrickX platform, where 19 homes are split up into units called “Bricks”.
These units, which cost as little as $50, represent a tiny ownership of an investment property.
As a Brick owner, you get the same benefits (and risks) of an investor who bought a whole house – including rental income.
2. Real estate investment trusts (REITs)
Investors contribute money towards these funds, which the trust managers then use to buy up real estate.
It’s the same idea as a managed fund for shares, where the fund manager will take a commission for their work and the investor can add or withdraw money easily.
Just like share funds, REITs are now popularly available as exchange-traded funds, you can invest from as little as just one share (which can cost you as little as $1.84) provided there are no minimum investment amounts.
The great thing about REITs is that it allows the average Joe and Jane to invest in commercial or industrial real estate, which generally have better rental returns than residential properties (returns can be as much as 10-14 per cent).
But like any stock, there can be price volatility with REIT ETFs – the cost can go up and down depending on demand and supply at any given time.
For example, when the COVID-19 lockdowns and recession first hit Australian shores last year, REITs took quite a hit while CBDs were deserted and firms looked to reduce costs.
But there is improvement expected ahead as we press on with our ‘new normal’ and businesses start to resume working in the office.
3. Bargains in desperate areas
Fractional investing and REITs are great – but if you don’t like sharing and still want to own an entire house to yourself, you can look to some ‘desperate areas’ around the world.
Once in a while, a city, town or district will offer houses for ridiculously low prices to attract investment in the area.
The council figured it was cheaper to do that than spend taxpayer money renovating them, plus it would bring in money from outside the area.
The catch with these super-cheap houses is that there is usually an obligation to either renovate or live there for a portion of your time.
If what we’ve discussed above sounds good, this week’s challenge includes some additional things you may want to try.
Remember, you should always seek professional advice in relation to your personal financial circumstances before you commit to any financial strategy.
Length of time to complete: 1 hour
Part 1: Download a property report for suburbs in your area
There are many property data sources which are available at your fingertips. Here’s how to access the right data for you.
- Step one: Go to a property data website such as , , or .
- Step two: Search for postcodes or suburbs in your area.
- Step three: Download the free property report for that area.
Part 2: Find out how much you can borrow
The simplest way to calculate how much you can borrow (your borrowing power) is to use one of the bank’s home loan borrowing calculators.
- Step one: Go to one of the available online borrowing power calculators, such as , W or .
- Step two: Input your information as prompted about your income, where you live, deposit amount, number of dependents and your expenses.
- Step three: The home loan borrowing calculator will then be able to reveal a guide amount of how much you are able to borrow.
Or, for a more accurate picture of exactly what you are able to borrow, go directly to your bank or financial institution for a personalised quote.
Part 3: Start a new savings account and label it ‘house deposit’
Naming and categorising your accounts helps aid your saving success, because if you’re able to visualize and constantly remind yourself what that lump of savings is for you’re more likely to be successful in the long run.
- Step one: Open a high-interest savings account or term deposit for your home loan deposit savings.
- Step two: Label it ‘house deposit’.
Part 4: Negotiate a new mortgage rate
If you already have a home loan, you should regularly review and negotiate your rate to save you paying unnecessary fees.
- Step one: Do your research. How much is your lender offering new customers and how much are lenders charging elsewhere?
- Step two: Contact your lender and ask them to match the lower rate you’ve found elsewhere.
- Step three: Get it in writing
- Step four: Prepare to switch lenders if you’re still not happy.