Investment Property Guide
Some strategies on the best way to Investment in Property
At Adelaide South Property we have a strong bias in favour of property as the best form of investment for the following reasons;
• Property does not fluctuate widely in prices as do shares.
• Property tends to rise or stabilise without sudden drops in value.
• We believe a strong portfolio comprises of a wide variety of properties
We believe that when investing it is important to consider:
• Different geographic zones.
• Different types of property – residential, commercial, retail.
• Different levels of gearing (borrowing).
Our understanding is that property in the capital cities of Australia has risen at an average rate of eleven percent per annum compounded since the year 1900. This means that property values double approximately every seven years.
Although we may currently be in a slight downturn we believe that the jury is not out on how this will pan out in the longer term. Adelaide has often experienced periods of slow growth in the shorter term but with a longer perspective the market has recovered and delivered closer to this historic average. The eastern states often encounter extreme fluctuations of gain & loss but the Adelaide market has been largely immune to this and so presented itself as a stable place in which to invest.
For flexible liquidity we suggest the following:-
Always have one Residential Property of High Equity
We believe that every portfolio should have at least one property which has high equity so that if sudden liquidity is needed the property can be sold or remortgaged to achieve surplus liquidity at very short notice.
Having all of your properties in “one basket”, in a small area, can proceed smoothly in the good years but if this one area were to experience difficulties then your entire portfolio could suffer which could place you under extreme financial stress.
Select areas and properties based upon the rate of return of rent, expected capital growth and the ease with which it may be possible to sell them if the need arises.
• Properties in different parts of the city and state respond to different economic stimuli.
• Properties in the lower priced industrial working areas are often the focus where governments will stimulate a market through first home buyer incentives.
• Property in “mature” areas where the deposit may be higher and where a higher level of negative gearing may be experienced during the first years of the life of the investment may grow in value at a very significant rate in a “mature” economy and always be easy to liquidate.
We believe in owning commercial properties and these may include:-
Commercial Real Estate has the benefit of providing a higher rate of return. This higher rate of return is maximised by having a good tenant who has entered a formal lease agreement prepared by a specialised lawyer under the instruction of a competent Commercial Real Estate Agent.
With a formal lease in place this higher rate of return will be evident for the following reasons;
• The tenant is required to pay outgoings such as Council rates, the full SA Water rates bill (not just the quarterly supply charge and usage), Emergency Service Levy, Building insurance, Plate glass insurance, Public Liability Insurance.
• The tenant in many cases is required to pay for the ‘fit-out’ of the property, servicing of air conditioners and other equipment.
• The tenant may be required to repaint the premises at regular intervals (subject to lease conditions negotiated at the beginning of the tenancy).
• The tenant is required to take care of many of the day to day maintenance issues of the property such as basic plumbing repairs.
• All rent increases are built into the original lease agreement which could include annual increases of say, CPI plus 2% with rent reviewed by comparison to the going market rate at regular intervals
• At the end of the lease the tenant may have to repaint and recarpet the premises (subject to lease conditions negotiated at the beginning of the tenancy).
But this is nevertheless a higher risk form of investment. As a buffer to this higher risk we recommend that you own a number of residential properties first, including 1 or more with high equity before considering the purchase of your first commercial property. If financial uncertainty comes then it should be possible to more quickly release cash by selling a high equity residential property.
If you want another perspective on things consider acquiring investment properties to get you into a home of your own sooner. See our post; Get into the Property Market quicker by Investing in Rentals now
We suggest that you contact us before investing in Commercial Real Estate. To find out more ring us on (08) 8186 2777 or use the contact form below and someone from our office will be in touch.