Guide to property investment success in NSW

What is your property investment strategy?

What is an investment property?

Before we get into the details let's define what a property investment is.

It is a property purchased with the intention of making a return on investment, via rental income or future resale, or both.

There are several different types of investment properties and understanding your options is a good first step:

You'll often have two conflicting strategies; invest for capital growth or positive cash flow

Commercial property investment - covers any type of property that a business operation would use, whether it is an office, retail, or industrial space.

Mixed use - a mixed use property can be used for both residential and commercial purposes. For example, an apartment building may have retail on the ground floor with residential apartments above.

Residential property text - is by far the most common within Australia. These properties can be single family homes, apartments, townhouses or other types of residential structures.

What are the different ways to invest in property?

Buying an apartment

Depending on where you buy, an apartment is generally cheaper to purchase than a house and normally comes with lower ongoing maintenance costs as the owner's corporation takes care of building maintenance. They do however normally come with strata management fees, and you have less control over alterations as a result of the body corporate.

Demand is also in favour of apartments as 70% of tenants in NSW rent apartments. Although COVID has led to high vacancy rates in inner city apartments, generally speaking they are quicker and easier to rent than houses. However, they often don't generate as much capital growth, but of course every property is different.

Buying a house

Houses traditionally are more expensive to buy but have greater capital growth potential than apartments. Not being restricted by strata management laws, they generally have a little more flexibility than an apartment when it comes to making changes and enhancements.

Houses are normally on larger blocks of land, attract longer tenancies, and if in a high growth suburb can deliver strong long term capital growth. However, on the flip side, houses are normally more expensive to purchase, they often generate lower rental yields and cost more to upkeep.

A good real estate investment strategy considers the investors personal situation, their goals, risk tolerance and future income requirements

Buying a new property

A key bonus when buying a new property as an investment is the ability to claim full depreciation on both the ‘plant and equipment’ and the ‘capital works’. From an investors perspective it provides a higher total base tax deduction entitlement plus, new properties normally come with lower maintenance costs.

Renovations and house flipping

For investors who don't mind getting their hands dirty, investing in properties to renovate and sell is common, particularly amongst Millennials. In this instance an investor will purchase a property that needs a renovation, they make some careful value-add changes without overcapitalising, and sell with the intention of making a profit on the sale.

Renovate and hold

This is similar to house flipping but is a longer-term strategy. After the purchase of a property, the investor will renovate, and hold onto it for a period until the asset increases in capital growth. When renovating it is important to ensure you add features that buyers are willing to pay more for.

Talk to your local property manager about what features would be valuable for longer term capital growth.

Real estate investment trusts

Rather than investing in a single property, investment trusts combine funds from multiple people and invest in a range of different assets on your behalf. This type of investment offers a more diversified strategy and doesn't rely on a single property to generate returns. However, you generally don't have control over which properties are purchased and where.

Buying an investment property with your superannuation

Buying an investment property using your superannuation is possible, but it comes with several strict regulations. For instance:

1. You can only purchase a property investment via a self-managed super fund.
2. The investment property must meet the ‘sole purpose’ test of providing benefits to the fund member(s).
3. It cannot be acquired from a relative.
4. It cannot be inhabited by a fund member or any relative of the fund member(s).
5. It cannot be rented by a fund member or any relative of the fund member(s).
6. If you invest in a commercial property, you can lease it to a fund member, but it must be at the market rate. There are additional rules to adhere to in the case of member rented commercial properties.

There are also a variety of fees involved when buying a real estate investment property using your superannuation including legal fees, bank fees, upfront fees, and advice fees. Additionally, there is the stamp duty to consider and the ongoing cost of property management and maintenance.

Find out more about buying a property investment with your superannuation here.

Buying an investment property using your superannuation is possible, but it comes with several strict regulations

Buying a property investment - how to find the right one

How to research the property market to by a real estate investment

Understanding supply and demand, economic and demographic trends as well as planned infrastructure and developments for the areas you are looking to invest in, can help you make smarter investment decisions.

The following websites can help provide insight into a range of market indicators including average property price and capital growth, market cycles, property types, community profiles, vacancy rates, rental yields and loads more:

• CoreLogic
• Australian Property Monitors
• Australian Bureau of Statistics
• SQM Research
• Residex

Importantly talk to the local real estate agent, property developers and property managers. They live and breathe property in the area and can give insights into the local market, expected rental yields and growth potential.

It’s also a good idea to visit the area yourself so you can get a feel for the suburb, the type of people who live there and access to sought after location features.

What location features property investors should look for

Location is a key feature of property investment success. By purchasing the right property in the right location, you take care of one of the biggest pieces of the property investment puzzle.

Consider what type of tenant you are targeting and what location will help you attract this tenant pool.

Here are some key location features to consider when looking for a property investment:

• Quiet location but with easy access to public transport or main roads
• Proximity to public transport, cafes entertainment venues or other sought-after amenities
• School catchment area
• Access to parks, beaches and other recreation and lifestyle options
• Safe neighbourhood with a low crime rate
• A neighbourhood that’s experiencing growth, development, expansion or new  infrastructure
• A neighbourhood with historical charm and mature streetscapes
• Within 10km radius of a major city
• Parking is popular with professional tenants so is worth considering if this is your target audience
• Outdoor area such as a balcony
• Abundance of light coming into the property

What are rental yields and how to improve them?

Rental yield is the amount of money you make on an investment property. This is calculated by measuring the gap between your rental income and your expenses.

To determine your rental yield, you multiply the weekly rent by 52 weeks and divide it by the purchase price.

Whilst improving your rental yields is not an exact science, talk to your property manager to see if making any of these changes could help improve your yield:

• Paint the walls
• Create an outdoor living space
• Tidy up the garden
• Fix the flooring
• Update the kitchen
• Refresh the bathroom
• Add extra features that tenants love like an air conditioner, dishwasher, internal laundry or shutters
• Add built ins or storage
• Add a parking space
• Ensure good property security

To talk to a DiJones Property Manager click here.

Property managers are a great resource for information on how you can improve your rental yield 

Investment property tax deductions

The ATO offers property investors several tax benefits which is why this type of investment is popular with many Australians.

For example, you can normally claim the following expenses:

• Property management fees
• Landlord insurance
• Advertising expenses
• Interest on your investment loan. You cannot claim principal sum repayments or refinanced loans.
• Land tax and council rate deductions (when the home was inhabited).
• If your property was settled after September 16, 1987, you can claim building depreciation and depreciation on some installed appliances.
• Maintenance and repair costs directly related to wear and tear
  
  

  Importantly talk to your accountant about your property to ensure you are claiming all the right deductions come tax time.

What is the role of a property manager?

Property managers play a critical role in the success of your investment. They are highly skilled and trained professionals who are responsible for helping ensure your investment runs smoothly.

A property manager will:

• Create a marketing and advertising campaign to attract quality tenants
• Host open home viewings
• Interview and screen tenants
• Negotiate leases, and general tenant management, condition reports, move-outs and move-ins
• They also manage rent, including collecting rent, setting the rates, and dealing with late fees
• Manage repairs and maintenance issues
• Set, manage, and keep track of the budget

At DiJones we realise that not all landlords want the full bells and whistles, so we offer them a choice. They can choose a full-service model or select the services they would like us to look after.

How a property manager can add value to your investment

In addition to managing your property a high-quality property manager also understands how to add value to your investment.

1. They’ll help find quality renters who are more likely to stick around for the entire lease, and keep the property in good condition throughout. This will save you the financial strain of having to continually relist your property.
2. They’ll also ensure the property is well-maintained through frequent inspections and by managing any requests for repairs or maintenance, which will in turn lead to higher quality tenants.
3. They are aware of the local market and how much other properties are earning. They can help ensure you are charging the right rent and maximising your rental yield.
4. They can help guide you on features to add or areas to improve to your property in order for you to charge a higher rent, or to improve your long-term capital growth.
5. By conducting regular inspections they can address any potential maintenance issues before they become a bigger problem, therefore saving you money over the longer term.

To talk to a DiJones Property Manager about how you could add value to your property investment click here.

How to review your property investment’s performance

Maximising a property investment’s returns is a key priority for most investors. A key first step is to understand how your investment is currently performing. With this insight you can create a strategy that drives even greater returns.

Here are 5 ways to help you review your property’s current performance so you know how and where you can make changes:

Are you charging the right rent? - this is fundamental to the success of your investment. Rental rates change with demand and market conditions so talking to your property manager and organising a rental appraisal will help here.

Does your property match the market conditions - every property follows its own unique cycle. For instance, west facing properties may achieve a higher yield in winter versus south facing waterfront in summer. Are there opportunities to leverage your local market to achieve more?

Does your property appeal to your target renter? - the condition of a property has a big impact on the quality of tenant you attract and how well they look after it. Are there any opportunities to make changes or add value?

Review your investment loan - with interest rates at an all-time low, talk to your lender to see if you can reduce the interest or fees you are paying. The market is highly competitive so you might be able to negotiate better terms.

Are you claiming all relevant expenses? - talk to your accountant to ensure you are providing them with all the necessary paperwork to be able to claim all the available tax deductions on your property including any depreciation.

Are you insured? - landlord insurance is a good idea to help protect your asset. If you don’t have insurance this is worth exploring.

Annual strategy session - talk to your DiJones property manager about having a one-on-one investment strategy session. Our team of experts can help guide you on where you can add value to your property or make savings to ensure your maximising its performance.

Read more about how to review the performance of your investment property here.

What are the benefits of using a property manager?

Working with a high performing property manager can offer you a range of benefits including:

Better quality tenants - they will screen tenants, reference check, review rental history and conduct interviews where necessary. At DiJones we offer a tenant matching service based on their suitability to a property and the landlord’s requirements. This matching enables us to find better matched tenants for our property owners.

Manage any day to day issues - they act as the middle person between you and the tenants so that you don’t need to deal with complaints or damaged property.

Availability - their service is their job, so they provide tenants with a contact 24-7 in case of emergencies. That means you don’t have to.

Rent management - property managers ensure tenants pay rent on time or chase them if it is running late. This allows you to keep your finances in check.

Knowledgeable - they understand the property market and are up to date on new legislation that might impact your property.

Better yields - property managers will be able to determine the best price for your property, to ensure you are achieving the best possible return.

For detailed information into the qualities of a high performing property manager click here.

Benefits of getting an annual property appraisal and strategy session

As an investor, maximising your returns is a key priority. But how do you know where to start?

At DiJones we offer an annual strategy session to all our clients. Our property managers will meet with you and do a complete rental appraisal. They will take a deep dive into the local rental market to ensure you are charging the right rent. They will look for opportunities for you to add value and appeal to your property and advise you on where you could make changes that may positively impact your capital growth. Plus, they will share insights into where you could make savings and ensure you are working with your accountant to maximise your tax deductions.

Connect with your local DiJones property manager to organise a strategy session.