📖 What Every Property Investor Needs To Know About Finance, Tax and the Law by Michael Yardney et al.

Topic: Property Investment | Medium: Kindle | Rating: 5/5

Been reading a lot of property finance books lately and this one is relevant to the Australian economy. I was specifically looking for advice on entity structure, specifically trusts and I found this very useful.

A lot of information here is referenced from the book. I recommend reading the book for greater context.

Keynotes:

Strategy

Returns on Property Investment

1. Capital growth – as the property appreciates in value over time.
2. Rental returns – the cash flow you get from your tenant.
3. Accelerated or forced growth – this is capital growth you “manufacture” by adding value through renovations or development.
4. Tax benefits – things like negative gearing or depreciation allowances.

Stages of Property Investment

1. The Accumulation Stage – build asset base by acquiring well-located properties and "manufacturing" growth.
2. Transition Stage – slowly lower your loan to value ratios.
3. Cash Flow Stage – live off your property portfolio.

Cash Flow vs Capital Growth

• With property, you will typically have two out of the three variables - cash flow, capital growth and risk.
• "Real wealth is achieved through long-term capital appreciation and the ability to refinance to buy further properties."
• "Cash flow will keep you in the game, but capital growth will get you out of the rat race."

Purchasing

6 Stranded Strategic Approach and only buy a property:

1. Appeals to owner-occupiers.
2. Below intrinsic value.
3. High land to asset ratio.
4. A long history and future prospects of strong capital growth.
5. Something unique, special, different or scarce.
6. Ability to manufacture capital growth.

Financing

The 4 C's when assessing borrowing:

1. Character - how you manage your financial commitments.
2. Collateral - an asset that can be sold to recover the debt.
3. Capacity - ability to repay the loan amount being sought.
4. Capital - contribution.

The lender will review your credit score, employment history, LVR and more.

Strategy:

1. The ability to finance or leverage. Banks restrict lending to properties that appeal to a limited resale or tenant market. * Very good point *
2. Start off the with the hardest lender then move to the next hardest to maximise future borrowing opportunities.
3. Stay leveraged by setting up a Line of Credit for opportunities and create a financial buffer for emergencies and buying time. * Another very good point *
4. Flexibility in your loans. e.g. A variable IO loan that allows you to make unlimited extra repayments above and beyond the minimum required each month.

Extra Notes on Tax & Trusts