cover story
Building a portfolio by Julie Gatehouse
If you’re thinking about buying an investment property but don’t know how it works, we’re here to help. MPP talks to industry experts about how to build a property portfolio. hy do people invest in property? For many, it’s the idea of making money from something tangible and useable. Nurse Steve Jones says, “We’ve got three young kids and wanted to do something for their future because house prices aren’t going down here.” Steve and his wife Jo, a teacher, own their Mountain Creek home. “In 2007 we decided to plan our finances and start investing.”
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Using equity from their home, the Joneses borrowed money to buy a 650-square metre block of land at Kawana Forest. Equity is the difference between the market value of a home and what’s owing on the mortgage. The couple paid a building company to construct a standard house with four bedrooms plus study and a double lock-up garage. They hired a real estate agency to rent the property, which has had the same tenant ever since. “The house and land cost us $425,000 and it’s renting for $430 a week, so that’s about five per cent yield,” says Steve. Steve and Jo borrowed again, buying another 650-square metre plot in the same suburb and building a slightly bigger house. “That all cost $480,000, but it’s now renting for $450 a week,” Steve says. The couple has negatively geared the properties, meaning they still chip in money each week to their financial lender. “But we get tax advantages as well as income from the rents,” Steve says. “Then capital growth occurs over time.” Negative gearing occurs when the income from rent is less than the costs being paid, such as interest on borrowings, rates, repairs or management fees. This can reduce an investor’s taxable income. Steve describes their investment strategy. “Some people want to buy and sell for shortterm profit, but we want to hold for a whole property cycle –10 years or more,” he says. Comprehensive planning and unemotional decision-making are two key pieces of advice that property industry experts offer. Novice investors are urged to seek advice from experts such as accountants, financial advisers, lenders, solicitors, mortgage brokers, banks, valuers, real estate agents, and government and industry bodies. The Real Estate Institute of Queensland says, “Property investment remains an attractive long-term wealth creation strategy
Budget for valuation fees, stamp duty and insurance
6 My Property Preview | February 12, 2010
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