📖 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
- Capital growth – as the property appreciates in value over time.
- Rental returns – the cash flow you get from your tenant.
- Accelerated or forced growth – this is capital growth you “manufacture” by adding value through renovations or development.
- Tax benefits – things like negative gearing or depreciation allowances.
Stages of Property Investment
- The Accumulation Stage – build asset base by acquiring well-located properties and "manufacturing" growth.
- Transition Stage – slowly lower your loan to value ratios.
- 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:
- Appeals to owner-occupiers.
- Below intrinsic value.
- High land to asset ratio.
- A long history and future prospects of strong capital growth.
- Something unique, special, different or scarce.
- Ability to manufacture capital growth.
Financing
The 4 C's when assessing borrowing:
- Character - how you manage your financial commitments.
- Collateral - an asset that can be sold to recover the debt.
- Capacity - ability to repay the loan amount being sought.
- Capital - contribution.
The lender will review your credit score, employment history, LVR and more.
Strategy:
- The ability to finance or leverage. Banks restrict lending to properties that appeal to a limited resale or tenant market. * Very good point *
- Start off the with the hardest lender then move to the next hardest to maximise future borrowing opportunities.
- 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 *
- 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.