A Tax Depreciation blog by Paul Bennion.

The latest national property figures show that prices in most capital cities in Australia are now moderating even in boom areas such as Sydney and Melbourne.

More competitive property prices means that more first time property investors are now in a better position to get their first foot on the property investment ladder.

This is particularly the case in capital cities such as Brisbane where the median house price is still below $500,000.

If you are considering buying an investment property for the first time, then you should consider the following points:

  • Take a wide geographic approach to where you will buy your first investment property. Too many people make the mistake of buying their first investment property near where they currently live with the result they overlook future boom suburbs in other areas.
  • Use the R.C.C location rule when buying an investment property. It should be located either near the River, Coast or City. Properties in these areas generally have demonstrated higher rates of capital growth and rental returns because of the growing focus on lifestyle in the Australian property market.
  • Begin your property portfolio by purchasing a well located property for less than the median house price in the area. Buying a lower priced property will give you good experience while at same time not financially over committing yourself. You can start by buying a smaller property in a high capital growth suburb such as an older home unit located near the river or close to the beach.
  • Consider the land content of the investment property rather than the structure of the home. It is important to remember that land appreciates in value and the buildings depreciate in value. A property which has a land content of more than 75% has a greater chance of appreciating at a higher rate than a property where most of the value of the property is in the building.
  • The block size of the property is also important. The larger the block the greater the potential the property has for future subdivision which will significantly increase the value of the property. You should check with the local Council to ascertain any future changes to land zoning which might allow the opportunity for higher density homes.
  • Consider buying a property where there is a broad range of property owners rather than just investors. For example, if the area has a significant number of owner occupied homes it means that the potential pool of people wanting to buy your investment property in the future will be much higher than a property that just appeals to investors.
  • Rental income is a key factor when choosing an investment property. Your property should be located close to schools, shops and transport to attract the highest number of tenants..
  • Always work towards a strategy of buying several investment properties rather than just one or two. Through owning several investment properties, you can create significant amounts of personal wealth. To achieve this outcome ensure you claim your full tax entitlements such as depreciation benefits. Depreciation benefits alone total up to 60% of the total purchase price of an investment property.
  • If you plan to buy several investment properties, make sure you obtain good financial and tax advice. Getting the correct finance in place can be just as important as selecting the investment property.
  • Consider buying a property where there is a broad range of property owners rather than just investors. For example, if the area has a significant number of owner occupied homes it means that the potential pool of people wanting to buy your investment property in the future will be much higher than a property that just appeals to investors.
  • Rental income is a key factor when choosing an investment property. Your property should be located close to schools, shops and transport to attract the highest number of tenants.