After a quick and simple refresher on how to make your money work for you with property investment? Take a look at these quick tips on how to make sure that you’re doing as much as you can to be successful.
Always remember: Lazy money is money that is just sitting around. Put it to work!
In order to be a successful investor you need to look closely at your incomings and outgoings, and to get comfortable with the idea of being in a bit of debt.
Not all debt is bad, because as you may have heard there’s good debt, and then there’s bad debt.
In a nutshell…
- Good debt is an asset which increases in value over time.
- Bad debt is an asset which declines over time.
The type of debt most of us are familiar with is the kind where you have to pay back money with interest for purchases that you’ve made.
It’s often in the news about the amount of debt Australians have. While this can be something that can make you worry, it’s important as an investor to understand that not all debt is bad! In fact, good debt can help you to grow your wealth.
What is good debt?
Good debt is when you borrow to invest and your investment produces an income. This therefore makes the interest you’re going to pay on the loan tax deductible. Good debt is also where the investment increases in value after you have invested, for example, when you invest in property or shares.
What is bad debt?
Bad debt happens when you borrow to invest but the asset depreciates in value. This means the interest on the loan is non-deductible because it is a non-income producing asset, such as a car.
Many of us cannot avoid some form of bad debt, but it is best to try and minimise it whenever possible. So how do you put your debt to work (once you’ve become comfortable with the idea of being in debt)?
1. Minimise your tax and maximise your debt!
The average tax bracket is 33%. That means that on a 5 day working week for Monday and most of Tuesday you’re working for the tax man. Then for the tiny bit left of Tuesday, all of Wednesday and a little bit of Thursday you’re working to pay rent, then for the rest of Thursday and Friday you’re working for food and bills and petrol and everything else.
We live in a society where we’re living beyond our means as well, with the average person spending above and beyond what they earn. With spending like this, how are you meant to get ahead in life?! You need to make your tax work for you instead of just squandering it. Australia is very kind to property investors when it comes to tax breaks, so use them!
2. If you can control it, you should
You need to take stock of the things you can’t control, and then make them work against the things that you can. Let’s take a look at some things you can’t control:
- Supply and demand
- Rental demands
- Economic growth
- Population growth
- Interest rates
You can’t walk into the bank you have your loan for and negotiate a lower interest rate after they’ve hiked them up, sadly. What you CAN do is control as many of the factors that you can to mitigate against the unknown.
So, what can you control? Things like how you’ll structure your property portfolio, and what sort of investments you’re going to make. Stuff like:
- Renovations to add value
- Subdivisions/developments to add value
- Off the plan purchases with increased value
- What kind of property you buy in which area
While you can’t control supply and demand, you can make sure that you choose a dwelling in an area that appeals to the demographic of that area, or that you take population growth into account before you buy. It’s all about how you approach things and how you structure your finance around your property investment plan. Actually, speaking of finances…
3. Structure your finances and know your stuff
When we sit down with our clients we go over five key things which are vital to any balanced and measured property investment strategy:
- What is your protection strategy?
- What is your debt reduction strategy?
- What is your property strategy?
- What is your finance strategy?
- What is your tax minimisation strategy?
If you don’t know the answers to all (or at least 4 out of 5) of these, then you might be in need of some property investment advice!
You need a great strategy to get ahead in property investment and thankfully, we know our stuff. Without a strategy and plan, everything falls apart. After all, as Sun Tzu said “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” We ensure that we give every client that comes into AllianceCorp has the right strategy for their goals.
This is all tip of the iceberg type stuff though, and we’re always looking ways to help our clients with investing smarter and building a portfolio. If you’re ready to get ahead with your property investments, register here for your complimentary and obligation free session with one of our property experts: