Passionate about property investment as a vehicle to build wealth, Lloyd enjoys sharing his deep industry knowledge to help people become financially independent.
Looking to get started in property investment, build passive income or boost your portfolio? DPN Director, Lloyd Thomas, brings over 20 years of experience in property and financial services to the topic of positive income investing.
What is a true asset?
First of all, is your house an asset or a liability? To answer this question, ponder what would happen if you took six months off work. While you might gain some equity and money in your pocket upon sale, it’s not actually a true asset unless it makes money without any effort on your part. So, with a true asset, you could be in the Bahamas and it’s still going to bring you income and go up in value.
The big difference between positively and negatively geared property
Gearing is when you borrow money to invest. The income earned from your investment property is either positively or negatively geared. This makes all the difference in whether or not your investment is making money while you're lazing on a tropical island.
A property is negatively geared when the rental income is less than your interest repayments and other property-related expenses, such as strata levies, council and water rates. Basically, a negatively geared property costs you money, because it’s leveraged against your income. You can claim some losses to effectively reduce your taxable income, but you’re reliant on capital growth over time in order to make a profit.
A property is positively geared when your rental return is higher than your interest repayments and other property-related expenses. Therefore, it makes you money while you sleep with an additional, positive income stream. It also increases your borrowing power and leverage for further investments. Rental income is still taxable.
The key ingredients for a positive income strategy
It’s important to choose the right property type to generate a higher return. Location is key in giving you a great rental yield. This means investing in high growth regions that are supported by population and employment. Interest rates are lower than they’ve ever been before, which is good news for accessing competitive finance and loan structures.
Choosing the right locations and property types
To determine high growth areas in major cities or regional hubs, look for consistent population growth and sustainable infrastructure. A growth suburb in a major city is indicated via forecast growth over 4% per annum. Affordability with median priced property has broad appeal for tenants and buyers. New properties in growth suburbs enjoy tax benefits and low maintenance, and having land content adds to capital growth.
Producing an income from property makes a big difference to your serviceability and opportunities for further investments.
Leveraging to invest
Leveraging comes in different ways. For example, you can borrow money from the bank, or leverage off your parent’s property. A positive income property influences your borrowing capacity, so it pays to make the right decision on your first one.
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Getting a strong growth property with a strong rental return is a real advantage in affording another property in the future. Furthermore, producing an income from property makes a big difference to your serviceability and opportunities for further investments.
The portfolio approach
The portfolio approach is a process of building on your investments in a timeframe that suits your circumstances and strategically generates positive income. For example, a portfolio of three properties might feature a combination of duplexes or dual key properties with multiple tenants generating income.
Successful results stem from having a strategy before you invest, based on expert research and advice towards making informed decisions. This way, you’ll establish the right finance structures from the beginning of your property investment journey.
When you get the right property on your first investment, this quote could easily apply to you:
Landlords grow rich in their sleep.
John Stuart Mill
This is financial education, not advice. It does not take into your personal circumstances and we recommend you seek independent guidance before undertaking any decisions.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879. Casa Capace Operations Pty Ltd, NDIS provider number 4050038018 trading as Casa Capace.