Free Guide Principles of Property Investing

8/11/2019 Free Guide Principles of Property Investing

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McCarthy Group made

what seemed to be a

daunting process easy

Katrina and Dennis Ghetto,

McCarthy Group investors since 2005

PRINCIPLESRIN IPLESOFF PROPERTYROPERTY

INVESTINGNVESTING

PRINCIPLESOF PROPERTY

INVESTING


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They did everything for us.

The whole process was made so easy,

we now have three properties

Cynthia and Jari Teivonen,

McCarthy Group property investors since 2009

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odays property investor is spoilt for

choice. Some people would say they are

bombarded with possibilities. Tere are

thousands of potential properties on

offer, and in many cases these are

advertised boasting assured capital

growth and/or guaranteed rent returns.

But what is the truth? How does aninvestor determine what will work best

for them?

Popular media offers continual

assurances to property investors, and

real estate agents alike that residential

property is a sure-re investment, and

platitudes like its safe as houses and

you cant go wrong with bricks and

mortar abound.

Like any good story, there is an element

of truth to these assertions; however, not

all residential property is necessarily a

Stephen McCarthy CEO, McCarthy Group

www.mccarthygroup.com.au

good investment. Some unwary buyers

can get trapped with a lemon, while

other more aware purchasers can pick

outstanding investments.

Te purpose of this guide is to help the

investor work through the Rubiks Cube

of options and choices, and assist them to

reach intelligent, informed, commonsense

conclusions about which area, and type of

property will bring the rewards they seek.

HOW DOES AN INVESTOR DETERMINE

WHAT WILL WORK BEST FOR THEM?


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In analysing which property areas will

have the best potential for total returns

you need to balance both short, and

long-term factors. otal returns is a

blend of capital growth (which we refer

to as the invisible), and the combined

returns of rental income, and tax benets

(which we measure as the visible).

Naturally, the visible returns are one of

the most important aspects of any

successful property investment. Since it

is rare for capital growth to happen

overnight, an investor will need to be in a

position to cash-ow the property or

THE TWO FUNDAMENTAL

PRINCIPLES: RETURNS & PRICEhold it until such time as it develops a

positive cash ow. Consequently, if the

visible returns are low, the property may

prove too expensive for the investor to

hold long enough to benet from the

capital growth.

In the case of an investor who has not

analysed the numbers on their property,

they may nd themselves having to sell

prematurely, and possibly lose some of

their hard-earned money. Investors may

take heed from a simple builders rule:

measure twice, cut once. Tis advice is

equally sound for property investment!

Most successful investors allow for aminimum timeframe of 5 to 7 years to

allow for a property to mature.


We didn't want our futureleft in the hands

of the mob in Canberra

Leanne & David Wakeling,

McCarthy Group property investors since 2009


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At the time o writing, it is unusual to

nd a property that offers both a high

rental return, and high capital growth.

Most high priced upper market suburbs

are historically top capital growthperormers; however, rental returns

rom these areas are usually abysmal. In

contrast, country properties or suburbs

on the outskirts o a city historically

have higher rentals but lower growth

rates.

I you agree that the best property is

one that is in the most demand, then the

largest, most consistent demand exists in

the market sector that appeals to what

demographers call Middle Income

Australia. ypically, this sector is

dened as mum, dad, two kids and their

pets. What we will call DIK (Double

income two kids).Trough sheer weight o numbers this

sector creates both rental demand, and

capital growth or their property o

preerence. Te next component to

consider when juggling the Rubiks Cube

o successul investing is selecting the

right price range.

THE RENT ONE THIRD RULE

Te rental market is mainly driven by

affordability. Te rule o thumb here is

that the annual rental asked should not

exceed one-third o this groups income.

It is the same guideline that banks use

when assessing loan applications; they

allow one-third o income or taxes,

one-third or living expenses, and one-

third or mortgage or rental payments.

USE YOUR HEAD NOT YOUR HEART

An investor should resist any temptationto buy in their own backyard. Tis is a

misguided notion or a number o

reasons. Most notably being that it is an

emotional decision that masquerades as

a rational one.

People ofen eel that they know

their own area, and having an

investment property close by means that

they can drive by to keep a eye on it.

When investors buy in their own

neighbourhood, it is usually symptomatic

o being stuck in their comort zone.

It is a decision not usually based on

good investing sense, and may blind the

investor to other potentially outstandingareas. Investing outside your own

backyard may not be as daunting as you

rst might think.

With cheap air travel, instant messaging

services and email, the tyranny o

distance is no longer a concern. Tere is

also no need or you to manage your

own property.


Buying Tip

Try to strike the balancebetween future potential

capital growth (the invisible)and todays rental/tax returns(the visible)


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Professional property managers offer

full comprehensive services for absentee

landlords. Simply keep it insured

against any calamity, and then manage

your manager!

Keep in mind that just because you

can drive by your investment house,doesnt mean it will go up in value any

faster. Nor does it mean you can pop in

and check up on your tenants at any

time thats called trespassing! Only

invest where the numbers work, and

keep emotions out of the decision!

WHAT DITK WANT?Te next component to consider is the

type of propertyfor our target market.

We are seeking areas in demand from

our target marketDIKS.

Te DIK sector has a denite

preference for detached housing. Tis

market also has a strong preference for a

house with its own backyard. Tey want

their kids to run around, and want to

provide the same safe and secure

environment that most Australian adults

enjoyed when they were growing up.

Tere is a nesting instinct that has

parents wanting to provide the same

upbringing for their own children.

When given the choice, most home

hunters in this sector have a further

preference for new or at least modern

homes. ypically, many families seeking

rental accommodation require in themodern home four bedrooms, ensuites, a

home study, lockup car accommodation,

generous storage space, free-owing oor

plans and modern xtures and ttings.

Naturally, investors offering these types

of properties have a strong competitive

advantage over older, more unfashionable,

dated looking properties.


Thanks to the teamat McCarthy Group I am

nally free of my mortgage

Barry Mulligan,

McCarthy Group property investor since 2004


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As well as this type of property being

more attractive to the target market,

there are two further advantages a newer

property has over an older property.

Firstly, an older property may require

heavy ongoing maintenance, which can

seriously diminish the rental returns

items such as replacement of hot

water systems, carpets, etc. can be

expensive. In addition the cost of major

repairs or renovations such as a new

roof, kitchen or bathroom are regarded

by the ax Office as capital items and

therefore the cost of these is deductible

only upon the sale of the property. Olderproperties can also be at a disadvantage

from obsolete construction materials (ie

asbestos) or design.

SLEEPER RETURNS

Secondly, there exists the major factor in

the age of the property which is the

sleeper return, namely that newlyconstructed properties qualify for

additional tax incentives for building

write-off and depreciation of xtures

and ttings. Essentially, what this

means is the larger the property the

larger the tax deductions, so a large four

bedroom home would qualify for larger

deductions than say a studio apartment.

Tese two components can mean

thousands of tax dollars being refunded

to the investor, further maximising

their returns.

INFRASTRUCTURE AND JOB GROWTH

In summary, we have covered who ourtarget market is, what they can afford, and

what type of property they are seeking.

Now to look to where we can nd the

largest concentration of this group.

o do this, one only needs to look at

the migration patterns prevalent in

Australia today. People are driven to or

away from areas directly in proportion

to home affordability, so it should be no

surprise to learn that those areas

experiencing a high inux of migrants

are those areas which have the most

affordable housing, along with the

potential for good employment and

better living standards in the new location. Author and demographer Bernard Salt

believes that there are two demographic

factors currently affecting capital growth

infrastructure and job growth. In his

recent publicationAustralia on the

Move,Salt identies Queensland as a

high growth state with families, and


CATER FOR THEMARKET REQUIREMENTS


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retirees moving to the lifestyle locations

it is famous for. Experts predict over

one million people will move to

Queensland in the next 20 years. It can

be reasonably assumed that the cost ofhousing will increase in key areas as a

result of this large-scale migration.

According to an Australian Bureau

of Statistics report dated June 2011,

ownsvilles population has grown at

a rate of 2.8% over the past ve years.

o put this in perspective the national

population growth rate was less than

1.4% and Queensland as a whole

was 2.3%.

Where population growth takes place,

its important that corresponding

infrastructure improvements also exist.

Currently Queensland, particularly

ownsville, is rich with infrastructuredevelopments. It has been earmarked

as the states second capital, with

expected rises in government

administration and infrastructure.

Tere are currently 75 projects on the

drawing board worth an estimated $4.5billion to support the regions growth.

Among them is the $200 million Ring

Road project announced in the 2012-13

Federal Budget.

McCarthy Groups years of experience

in the property market enables us to pick

the growth areas that will address both

the visible (rental returns) and non-

visible (capital gains) elements of

property investing. Why not contact us

today and get started on the path to a

secure nancial future.

Even though my accountantsaid I couldn't afford

an investment property,they made it happen

Donna Spencer,

McCarthy Group property investor since June 2011



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McCarthy Group Pty Limited ACN 086 284 826

02 9687 3601 / 1300 850 318 / F 02 9687 3610

Building 2, Suite 2.01, 35 Waterloo Rd Macquarie Park NSW 2113

PO Box 42 North Ryde BC NSW 1670

E [email protected] / www.mccarthygroup.com.au

For additional copies of this consumers guide, or another in our series, please contact us at the address below.

Tis guide is intended to provide general information of an educational nature only. Any information contained in this guide does not have

regard to the investment objectives, nancial situation or individual needs of the reader. Neither McCarthy Group Pty Ltd nor its affiliates

intend by this guide to provide any nancial product advice, and information in the guide cannot be relied upon as such. All readers should

consider obtaining independent advice before making any nancial decision concerning property or any other investment product.

PLEASE CALL 1300 850 318

VISIT OUR WEBSITE: MCCARTHYGROUP.COM.AU

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