REALas Australia’s most accurate property price predictions
REALas Australia’s most accurate property price predictions

3 Critical Lessons in Property Investment

3 Critical Lessons in Property Investment
February 4, 2015 Gemma H
3 critical lessons in property investment

George & Gail from Melbourne share their investment story

If you’re thinking about buying or investing in property, there’s nothing like learning from the tried and tested. As part of a new initiative, realAs are interviewing property-buyers with an interesting story to share. So join us at the beginning of each month for our buyer spotlight as we reveal secret learnings and tips you can trust because they come straight from the horse’s mouth.

This month, we welcome George and Gail who live in Melbourne with their two daughters, Sophie and Chloe. Having moved to Australia from the UK, George & Gail first decided to invest in property working under the theory that property prices double in value every 7-10 years. Their goal was to use the capital gains to expand their retirement portfolio and help secure long-term financial stability.

10 years on, have they achieved their goals?

George and Gail, thanks for being guests on realAs. Why property?

We wanted an investment that would provide long-term financial gains while at the same time having limited impact on our monthly cash flow. We were advised about the tax incentives of negatively gearing a property and decided this would be the way to go.

How did you start researching properties?

A friend introduced us to a property research company that evaluates market trends across Australia based on historical data, property cycles and economic growth areas. They recommended several apartment complexes in Queensland. We were aware the property specialists worked on a commission basis from builders, but this didn’t put us off because of the depth of data they provided and because we planned to further investigate.

We hopped on a plane and visited the recommended sites, looked at other complexes built by the same builders to determine their quality, talked to local real estate agents and viewed competition in the area.

What did you end up buying?

We bought a 2-bed new build in a block of 16 apartments with a shared swimming pool located in Trinity Beach, 20km North of Cairns.

The property specialists advised that new builds would be better for claiming on depreciation as well as costing us less in maintenance.

We chose the location because we could see high rental demand from 3 potential target areas: students attending Cairns University, people working in Cairns who want a beach lifestyle (Cairns has no beach) and, thirdly, locals working in tourism-supported businesses.

We thought capital growth would be strong because Trinity Beach is a popular tourist location and land around Cairns is constricted for development because of the Tablelands.

Have you achieved your goals?

In short, no! The GFC resulted in high unemployment in the area causing property prices to stagnate and rental yields to stay low.

We bought the property with a 10-year view. That timeframe has now expired and we’ve gained zero capital growth. Repayments and maintenance fees, even after we’ve claimed back through negative gearing, have left us out of pocket and the body corporate fees have doubled because of rising insurance costs associated with floods/cyclones in the area.

Any positives?

No rental gaps – we’re at least thankful that the property has been leased throughout our entire period of ownership.

3 key learnings?

  1. Buy within a market you know and understand (we would definitely purchase within Melbourne next time).
  2. If you’re buying into a complex, make sure the body corporate and ongoing fees are reasonable (complexes with swimming pools and tennis courts drive these fees up). Factor in a 20% increase over a 10-year period.
  3. Don’t assume negative gearing will cover most of your expenses (do your sums!) and put the property in the name of the highest income earner to make the most of tax rebates.

Thank you George and Gail for sharing your story with us and for your interesting insights into property investment.

One of the key messages you can take from their experience is that impacts from factors such as economic downturn are out of your control. As with any form of investment, there will always be risks to weigh up; it’s up to you to decide whether you can afford to take them. For more tips on investing in property, read our Beginners’ Guide To Property Investment.

Have anything to say about George & Gail’s story? Feel free to leave a comment!

If you think you have an interesting property-buying story that our readers should know about and you’d like to be featured in one of our monthly spotlights, please send us an email with 3 to 4 sentences summarising your experience.

 

Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.

 

 

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    The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of REALas.