Capital Gains vs. Rental Yield
Despites the ups and downs of Brisbane's property market, property investment remains one of the most popular investment assets. So, should you invest with the aim to achieve capital growth, or strong rental yields?
While the investment strategy to maximise Capital Growth could see your property make big profit in the long-term, it also requires you to know what’s going on in the property market. It’s incredibly difficult to identify property trends, so investors will need to know what areas and types of property are due for capital growth.
Properties with high rental demand will see you generate ongoing Rental Yield off your property investment. These properties, likely in the inner Brisbane suburbs, will generally be positively geared, meaning your rental returns will cover your mortgage and property-related expenses. However, these properties tend to have lower potential for capital growth. As the property is positively geared, you won’t be able to benefit from negative gearing and you’ll need to pay tax on your rental profits.
What is Rentvesting?
Rentvesting is a buying strategy that has emerged to address the issues of first home buyers facing the difficulties of being able to afford a home in a Brisbane area they want to live in.
It entails purchasing their first property as an investment rather than a place to live. Rentvestors typically purchase a property that meets their budget in a location they can afford, then rent a home in a location where they would prefer to live and work, like the Brisbane CBD. It is frequently more affordable to rent a home in a popular location than it is to buy it, and this basic financial fundamental is what’s behind the rentvesting revolution.
The primary benefit of the rentvesting strategy is that it allows you to get into the property market sooner. As every successful property investor will tell you, the sooner you get into the Brisbane market, the sooner your property can start generating capital gains and the sooner you can start to build wealth.
Features That Make Rental Properties More Appealing
Buying an investment property in Brisbane is a clever way to build wealth for your future. Here are some features to help find a property that promises continual capital growth.
An allocated car park: Convenient parking is a big plus that prospective tenants look for.
A level of rarity: High demand but low availability for a particular type of property is a recipe for success.
Location, location, location: Being in a popular, blue-chip suburb is key.
Focus on the features that are everlasting: You can always add value to your property with renovations, but choosing permanent features are a huge benefit. For example, land size, position in the street and/or the block of land.
Five Things To Consider When Buying Your First Investment
- Understand the real estate market and dynamics of where you want to buy. Doing research of the area will tell you what the demographic of renters are and what sort of property they are looking for. It also helps to find out what the median rent and property prices are.
- Old or New? Make the property attractive to prospective renters, but also keep in mind that you will likely be selling the property in the long term, so it’s important to make it appeal to other property investors.
- Find a balance between financial stability and enjoying life. You can read as many terms and conditions of various home loans as you like, but getting advice from a professional can make a big difference.
- Find a good property manager and let them do their job. In addition to the maintenance and payment, your property manager will be your go-to for advice on property law, your rights and responsibilities as a landlord, as well as those of the tenant.
- Take a long term view and manage your risks. Look at it as a long-term investment, the longer you can afford to commit to the property, the better the outcome.
Depreciation is often an overlooked tax deduction that can be claimed on investment properties in Brisbane. To claim depreciation, you will need to organise a depreciation schedule when you first purchase the property, so you can start claiming tax breaks as soon as possible.
Depreciation occurs as an item’s worth becomes less over time as it is used and it wears out. There are two types of depreciation tax deductions that you can claim: (1) Depreciation on plant & equipment refers to items within the building like ovens, hot water heaters, air conditioners, carpets, blinds and so on. (2) Depreciation on buildings or ‘building allowance’ refers to the construction costs of the building itself, such as concrete and brickwork.
In order to claim any tax deductions, you will need to employ a qualified Quantity Surveyor to do a thorough inspection to identify what can be claimed and to make valuations in order to create a depreciation schedule for you. This is the only way you can legitimately claim tax deductions for depreciation.
What is a “Strata Title” Property
Strata title is a method of facilitating individual ownership of part of a property – generally an apartment, unit or townhouse in inner-city Brisbane suburbs. Uniquely, strata title allows for individual ownership of an actual lot or unit whilst sharing ownership of the common grounds on which it is built.
Investing in a strata title property can be a smart move – it’s often an affordable way to enter the property market, and can be beneficial in managing repairs and renovations down the track. But whether you’re buying a unit or a townhouse, you should look into the history of the property and its strata scheme before you sign the contract.
Buying A Tenanted Property
Buying a tenanted property as an investor can be beneficial to have an in-place tenant because it means you will receive an instant rental return from the date of settlement.
It is important to crunch the numbers and review the current tenancy in place before you make an offer on a tenanted property though. If the current tenant is on a short-term contract at an elevated rental price, the investment will appear more attractive than what is realistic, therefore you need to be aware of this so you don’t find yourself at a loss when this lease ends.
This is where having a good property manager that you trust is important, so they can advise you on achievable rental returns and review/place a good tenant in your investment property. But, if the numbers add up and the rental return is on par with market value, then buying the property with a quality, existing tenant could prove to be a solid investment.
Who’s Responsible For Maintenance And Repairs
Who is responsible when it comes to repairs and maintenance of rental properties - the landlord or the tenant? The answer is both.
Before the property is put on the market for rent, it is the landlord’s responsibility to ensure the entire home is in working order and legally safe for new tenants.
- Smoke alarms are installed in the rental property as per government regulations
- All windows and doors close and lock properly
- Taps are in running order
Generally, it is the landlord’s responsibility to maintain the rental property within a reasonable state, and ensure general repairs are made to the structural and physical aspect of the property. However, it is also the tenant’s responsibility to look after the property’s general upkeep to prevent any potential damage and maintenance issues.
Do You Own A Healthy Investment
Your property’s welfare is important, not only to protect your investment property but also for your tenants’ safety. Here are some routine maintenance checks to ensure you make the most out of your investment.
Regular Building & Pest Inspections will ensure that you’re not at risk of water damage, termites or timber rot, and should be done every 12 to 24 months.
Electrical Safety Checks can help prevent electrical faults and blackouts. Maintenance every 12 months can ensure your property is compliant and safe for insurance purposes.
Cleaning your Gutters at least once a year will not only ensure that your down pipes remain unclogged, but removes what can potentially be a fire hazard. Gutter cleans also come with free roof reports so you can be aware of any leaks, cracks or rust.
Requesting Free Sales Appraisals can keep you updated on how much your investment is worth and its capital growth in your investment portfolio. If you’re looking to sell, it is a useful indicator of choosing the right time.
Investor lending rules tend to change and fluctuate, so it’s important to check your Finances to make sure you’re not paying too much in fees and interest.
Horror Stories For Private Rentals
Property investors often turn to private rentals in a bid to save money, assuming that managing a property isn’t worth the fees property managers charge. But it doesn’t always work out and some investors end up losing more money than they would have if they had hired a property manager.
Executive general manager of Terri Scheer Insurance, Carolyn Parrella, has seen some incredible landlord claims for tenant damage, including the time a tenant stole the entire kitchen from an investment property.
It’s not just damages that landlords are forced to deal with. Without a PM to oversee tenants and contracts, landlords can find themselves out of pocket if their tenants leave earlier than expected.