Thinking about investing in property?

Want to diversify your portfolio by investing in real property? Since the housing market crash that began in 2008, potential property investors have to be more careful than ever when choosing their investments and managing their property portfolio. Here are some pointers to consider when planning your first property investment...

Understand why real estate is one of the assets where you are investing. Remember that your investment’s goal is to secure financial independence—to create passive income and build equity.

Set your investment goals. Check your finances, current and long-term—then decide how much money you will need to maintain your standard of living when you achieve financial independence. Allow margins for inflation in your assessment.

Find sources of investment capita. Examples include equity in your family home, savings, loans, etc.

Understand the power of leverage and compounding. Choose a property that will appreciate in value over time or will earn good rental income, obtain the right financing and allow time for the magic of compounding to happen.

Choose the right investment for you. For beginners, you can set your sights on residential real estate. You may renovate established properties or build new ones to boost returns.

Determine the form of ownership. Seek the advice of a financial planner for the most beneficial form of ownership.

You can avail of asset protection and tax benefits by setting up a company to act as trustee of a trust to own the property.

Get to know the rules of thumb. Know how to use basic assessment techniques to help you in figuring out how to choose investments—understand the property cycle and how it affects values.

Find your investment property. Be familiar with the property markets where you will be investing—know property prices and rentals before you decide to invest.

Assess your prospective investment. Figure out the property's income potential by verifying the rental rates, expenses, financing, overall benefits (e.g. cash flow, returns, capital growth), and price.

Find financing that is most beneficial. Assess various lenders and their terms and fees. Or you can hire the services of a finance broker to help you with investing in property.

Consider the tax consequences. Weigh the benefits of your investment from a tax viewpoint by calculating your after-tax income—consider account depreciation allowances. Remember, it doesn't matter how much you make, it’s how much you have left after taxes that counts.

Negotiate the price. When bargaining for the property, know what price and terms you are willing to accept.

Accomplish all the necessary steps before and after settlement. Get help from a competent conveyancing solicitor to handle the conveyance for you.

Use a record-keeping system. Either a ledger or a computerised spreadsheet will do. A simple book-keeping system will keep you appraised of your property business.

Monitor your investment with income in mind. Don’t be sentimental about your property. Think of your investment as a money-making machine. Consider alternatives such as renovation to maximise its return.

Structure the sale to suit your needs. If you need to dispose of your investment, establish a reasonable selling price based on actual market value and check the tax implications of selling an investment property.

Secure your financial future. You can pyramid your property investments by borrowing against the increasing equity and use these funds as a deposit for the next time you are investing in property.

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