One thing that I’m always on the lookout for are great websites that delve into property in a variety of ways, be it investment, buying and selling, design, celebrity homes and the weird and wonderful. One website that I was recently alerted to by a friend is Hooked on Houses which is the brainchild of Julia from Ohio. It contains a great range of topics and information from renovation before and after, to houses featured in movies and TV. One of the posts that has really made me laugh relates to the interesting world of property listing photos.
When considering investing in property it’s essential to think carefully about why you are doing it and why you are choosing to invest in property over any other options. There is a lot of media coverage in many countries about the process and benefits of property investing and it’s certainly encouraging to a lot of people, however there are many questions that you should be asking yourself before heading down that path. One of the things I talk to people a lot about is to be ‘cautiously receptive’ of other people’s advice (including mine as well) and when you start telling people that you are thinking about buying an investment property you’ll be surprised at how many people have an opinion on it and plenty of advice to go along with it.
Ultimately, you are the only one that can decide if it’s the right option for you and your circumstances and this requires every potential investor to hold up a mirror and ask themselves some questions. Here are a few prompts that I found (and still continue) to find useful when considering buying a property for investment.
What do I want to get out of investing in property? Am I approaching this as a long term investment that I’m happy to maintain for years to come, or am I dong this for some fast returns?
Am I aiming to establish a portfolio of properties or am I going to buy one property for investment? If I’m aiming for multiples, how do I do that?
Do I want my investments to eventually be my primary income? Am I aiming to have it as a ‘retirement fund’ or eventually extra spending money?
Will I be disappointed if it takes a long time for me to see some positive cash flow from my investment? What if it starts off losing money?
Examining my finances, am I in a position to invest in property…realistically? Have I been putting off investing because I think I may not be able to do it financially?
Do I want a ‘set and forget’ investment or am I prepared to put time and energy into my investments? I think this question is very important to be able to answer as property can end up being either of those things.
How much do I know about being a landlord and how much time am I prepared to put into the process of learning about it?
Am I realistic about how I would manage if something goes wrong? What about if my income drops, if my family circumstances change, if I need to pay for major repairs or if I have issues with a tenant?
These questions are just a starting point for things to think about and all before you have been to an open for inspection. Often the first thing people will do when thinking about property investment is to go looking at properties and quickly fall in love with their dream investment. My view is that this can often be the first mistake in a long line of potentially costly steps. Remember, this is an investment and you need to be clear about what you want to achieve before you find yourself signing a contract of sale! Yes, it’s not the exciting part but it is essential. Being clear about your goals through investment will be one of the best first steps you can take and will certainly help pave the way for a successful journey. Try not to be put off by it, sometimes it’s challenging to put the brakes on and ask yourself such questions and you also need to be prepared to deal with your answers. If you don’t like what the answers are then it means that you need to do some more work before you get out there buying a property. It’s entirely worth it though so persevere!
If you are starting to think about investing or already are, what are the questions that you would recommend? What have you found useful to consider? Add them below!
At the end of my post yesterday regarding the incredibly cheap properties in Detroit I finished off by asking ‘What’s the catch?”. The videos below provide a very good overview of the issues facing the city right now and particularly how it is reflected through property prices and urban decay. It really is a very sad situation that the city finds itself in and I’d encourage you to watch a few of the reports below, particularly the last one that examines the decline of Detroit through the eyes of the local city firefighters.
If you’ve been watching the news over the last few weeks then you may have seen the unfortunate news about the city of Detroit in the US going into bankruptcy. It’s estimated that the city is in debt to the order of $18 – 20 billion. When looking into the history of Detroit and it’s decline over the years it’s fascinating to see the effect of the auto industry and the impact it had when things went offshore and downhill. In the 1950’s Detroit had a population of over 1.8 million. Between 2000 and 2010 it’s stated that the population dropped by over 25%. From the height of the 50’s it’s now estimated to be just over 700,000. The impact that this has had on real estate is on one hand amazing but on the other most likely disastrous. Below are a few currently listed properties that you could pick up for a steal. Click on the pictures to see more.
Last sold in June of 2004 for $59,000, this 3 bedroom house that is close to 100 years old has dropped by an astonishing 93% and is now on the market for $4000, yes you read it correctly, $4000! With the agent’s website listing a potential rent of $742 a month I can’t say I’ve ever seen a property with the potential to pay itself off in 12 months. It does awaken the skeptic in me though…let’s explore some more.
If you’ve got a few more dollars to spend then this following property may be of more interest at $12,000. It’s also got 3 beds and 1 bath but by the looks of it could do with a bit of work. Also, these houses could be in any type of area but this one does come with a virtual tour. I’m afraid that the music accompanying the pictures doesn’t add an awful lot.
The final one here I think is really pretty stunning considering what you can get when choosing to spend a more significant amount of money on a property. With 4 beds and 2.5 baths it’s amazes me that for $50,000 you can get what looks to be a completely livable home with spectacular grounds. The street-view on the website looks great…what’s the catch?
There are plenty of catches I’m sure with the purchase of any property in a once thriving city which has halved it’s population, is filing for bankruptcy and has an unemployment rate of around 16%. A simple investigation into property in Detroit will reveal that there are thousands of empty homes throughout the city and that the council has struggled to provide basic services due to over half of Detroit’s property owners failing to pay their tax bills. It’s a sorry state of affairs and one can only hope that a city such as this can recover.
The start of July can begin a confusing time for property investors in Australia with the end of the financial year, particularly if you’re new to being an investor and this is your first tax return with an investment property involved. As with all things to do with investing you’ll find that every man and his dog will have advice for you on what you can and cannot claim and how to squeeze every cent out of your tax return. Whilst this advice can often be good, and I’d encourage everyone to try and learn from the experience of others, the ultimate decision of what you can claim against your tax return lies with the friendly folk at the Australian Taxation Office (ATO).
Whilst I was sitting in front of the computer recently pulling together the figures for this year’s tax return I happened to stumble across the 2013 guide for rental property owners published by the ATO. It’s a fairly big document but I found it to be a really useful guide and it had some great lists and examples of what you can claim and how you go about it. It also covers things that you would need to consider should you end up selling an investment time at any stage such as Capital Gains Tax.
So I realised that one of my previous posts about the $190 million property might be a bit outside of the budget for the average person so I’ve discovered something else that could be of interest to those that like a bit of glamour and history behind their bricks and mortar. What more could you ask for then than picking up Liberace’s former house for an absolute song? (Pardon the pun).
Currently under foreclosure and quoted at $529900 USD it’s not in the most desirable area of LasVegas from all reports but with a coat of paint and some new gold swan taps in the bath tub it would scrub up just like new. Seriously though, when you watch the video (below) and compare some of the original footage to the pictures on the realtor.com website (click on the picture above) it’s actually quite sad to see the state that the property is now in compared to what it used to be like…regardless of whether it’s your taste or not.
The Google street view image below gives you an idea of the surrounding neighborhood, possibly not what you would be expecting.
As an interesting side note, in the new movie about Liberace the house that was utilised as the exterior set for Liberace’s house was actually the former home of Zsa Zsa Gabor that was sold earlier this year. I have a feeling that they may have shared the same interior decorator over the years so I’m sure it made sense…
One of the things that has taken me a long time to understand when it comes to investing is property depreciation and how it works with your income and particularly around tax time. I just sat through a webinar this evening (note my previous post about being willing to learn and becoming a student again) and it reminded me how challenging it was for me to get my head around it but also how beneficial it was once I knew about being able to utilise property depreciation to claim ‘non-cash’ deductions on your investment property come tax time.
In a nutshell it basically means that the cost of the property itself (both the building and the fixtures inside it) decrease in value over time, essentially it’s talking about wear and tear over the years. In Australia (I’m not sure about other countries) the tax office allows for legitimate deductions taking into account this decrease in value of the property and it’s fixtures each year. In the webinar it was stated that as much as 80% of investors are not claiming as much as they could be on these non-cash deductions each year. I certainly realised this a few years ago when I had a full depreciation schedule done on one of my properties. I was pretty pleased when the report outlined the amount that I could claim. The thing is however that you need to get a qualified quantity surveyor to prepare the report as that is all the tax office will accept. You’ll need to spend some time looking around to find the right person to do this for you. Don’t hesitate to compare and ask several surveyors about what they can do and the costs associated.
I’d certainly encourage all investors new or old to learn more about depreciation and how it can apply to your own circumstances, it can make an amazing difference to what you can claim against your investments and potentially a nice improvement on your tax return. The YouTube video below is from an Australian company (the ones that conducted the webinar) and I’d say is worth a look. This company is just one of many and I’d encourage you to look around and find one that suits your own needs.
Even one of the biggest lotto wins would still probably only get you a healthy deposit on this amazing property which is currently taking first place as the most expensive house for sale in the Unites States. Situated on 50 acres in Greenwich, Connecticut, I’m sure you’d have no issues figuring out what to do with the 12 bedrooms and 7 bathrooms. Alternatively you could pop out to the pool house for a dip in the pool or spa. Considering it’s been in the same family since 1904 it’s sure to get a lot of interest so get to the bank quickly to have your finance approved…see you at the open house! Click the picture below to check out the listing
An interesting article was posted today in The Age regarding information that was recently made available by the Department of Human Services in Victoria looking at rental housing affordability. The article highlights that the figures indicate that rental affordability in what have been traditionally cheaper areas has decreased, particularly over the last 5 years or so. It is interesting to see that rental affordability is stated as constituting no more than 30 per cent of a weekly welfare payment. A few comments are raised regarding the difference between affordability in metropolitan and regional areas as well as some of the perceived influences over why this affordability is decreasing. I’d recommend having a read over the article to have a look at some of the comments people are making, I can’t say I agree with them all but always interesting to hear perspectives other than your own. If you would like to see the rental affordability for other areas in Victoria click on the image below to go to the interactive table where you can select individual municipalities.
One of the things that you will find when you start investigating property investment is that there is a huge amount of information out there for you to digest. A lot of it is good and it’s great to know that there really are people willing to share their own knowledge to help you learn, alternatively there are also people willing to put out information that can unfortunately be misleading or are trying to make a quick dollar from the uninformed. The only way to know what to do is to learn it and frustratingly this takes patience. I’m a big believer that property investment is a journey and that it takes time, a lot of time. If you’re expecting to make big money quickly through buying and selling property for a profit then you’re heading more along the lines of property speculating rather than property investing. Some people may argue with me and that’s OK, I certainly won’t disagree that some people have made their fortunes out of speculating, but it’s not what this blog is about. This blog is about discussing the elements that you need to invest for the long term and to set yourself up for a prosperous future. The first step for most of us will be to accept that to do it we’ll need to ‘become a student’ again and go back to the books.
When I started out thinking about buying a property for investment I can freely admit that I knew absolutely nothing about what to do or how to go about it. Years later I’d like to think that I know a whole lot more and that this knowledge has put me in a much better position to manage and continue to improve my portfolio. That being said I’ve also come to understand that I will never know it all nor should I expect to. The property investor that thinks they know everything that there is to know is entering dangerous territory. So I guess you could say that the first lesson I learnt is that to do it well I needed to learn how to do it. If you are starting the journey then you’ll also need to figure out how to learn more about the ins and outs of investing. Being well informed is the best tool that you can have when starting out and you need to commit to developing this knowledge. As they say – A fool and his money are soon parted – becoming informed will make property investing an enjoyable and much less stressful pursuit and will hopefully help you avoid becoming the proverbial ‘fool’.
Once you start on your path to learning all about it you’ll quickly realise that there are huge amount of resources out there to digest and that it can be confusing. You’ll come across books, magazines, websites, blogs, conferences, seminars, clubs and organisations just to name a few. One of the ways I tend to approach all of this information is to sift it out by asking myself “What’s in it for the person giving me this advice?”. I started off by reading books, lots of books. Whilst some of the information was confusing and contradictory, I felt that for the most part, all the author of the book had to gain was the money from me buying the book. On the other hand, it takes a lot to get me to sign up for a seminar being run by a business spruiking the wonders of property investing. yes I’m cynical but I think a healthy dose of it in investing is a good thing. Also realise that you’ll be learning a new language. It took me a long time to start to understand the words and phrases used in property and I’m still learning. Try not to be put off by this however, it comes with time.
So if you’re just starting out, start out by becoming informed. Commit yourself to learning as much as you can and you’ll be giving yourself a great footing for a rewarding journey in property investing. If you are not willing to put in the time to learn about the ‘how to’ then I’d suggest that you might consider something else, as I’m sure that for every successful and well informed investor there are as many, if not more, that went into things uninformed and have come off second best. One useful place to start is to investigate the resources page where I’ll highlight some of the things that helped me start my journey. Whilst I found many of them useful you may not, keep looking and you’ll be sure to find the information that works for you.