Building equity and capital growth in your property is how to create wealth. Creating equity in your property is when you pay off your mortgage. Creating capital growth is when the property appreciates in value.
As a general rule, a house will give greater capital growth and apartments (strata complexes) will give a better income on your investment dollars.
Investing in your own home has the main advantage of generally being capital gains free, but you do not get any tax deductions for interest paid on your mortgage.
With your own home you should pay your loan off as soon as possible to save on interest. You need to get to the stage that all mortgages are tax deductions. You can purchase investment property using the equity built up in your home.
Broadly there are two types of residential investments, one is a house and the other is a strata complex. Houses are on a single lot and the owner is responsible for maintaining the land and the complete building. Stratas are generally a larger complex of units with a strata manager who manages the strata complex for you. With most stratas you are only responsible for maintaining what is inside your unit and in some cases outdoor area and the strata manager is responsible the rest of the property.
Be very careful when purchasing a strata. Check the strata documents, as they will describe what you own and what maintenance you are responsible for.
One investment strategy would be to purchase a house to live in and at some point purchase a smaller property, which you would be happy to live in when you retire. At retirement sell your family home and move into the smaller investment property. This will give you somewhere to live and a pot of gold to enjoy retirement.
Before you start looking for your investment property you need to determine the maximum price you are able to spend on a property. Obtain a loan pre-approval as this will help with determining the maximum purchase price and will help when negotiating the purchase of the property.
Buying an investment property is all about maximising capital growth and selecting the right property at the right price.
When looking at a property check the structure of the home and orientation to see if the living areas are facing north. Make sure the rooms are large; it is better to have fewer larger rooms than more small rooms. Ideally the main bedroom has space for a king bed and TV with room to move. See if the minor bedrooms are able to fit a queen bed with room to move around. Also consider properties where you can remove a wall to create larger living rooms or bedrooms.
Purchase a property close to the following features.
- Employment: areas close to Major city or major employment centres.
- Transport networks: Trains, trams, busses, ferry’s and freeway links.
- Infrastructure and services: Shopping centres, hospitals & doctors etc.
- Schools: Good state and private schools
- Recreation: Beaches, lakes, rivers, parks, golf courses and reserves.