Learn to: * Make real estate a part of your long-term investmentstrategy * Pick the right properties for profit * Spot the best deals on financing * Understand the new rules for purchasing properties usingSMSFs Become a successful property investor with this user-friendlyguide Are you thinking about real estate as a long-term wealthopportunity? Whether you're interested in a house, apartment,vacant land or commercial property, the second Australian editionof Property Investing For Dummies explains what you need toknow to ensure you invest wisely. Discover how to build a winningproperty portfolio with practical advice on everything fromchoosing the right property at the right price to financing yourgoals with SMSFs, and much more. * Decide which type of property is right for you -- choosean investment option that fits in with your financial plans * Assemble a reliable support network -- research and enlistthe help of lenders, buyers' advocates, advisers and otherexperts * Explore your finance options -- learn about mortgageterms, lending fees and holding property in a self-managed superfund * Evaluate properties worth pursuing -- find the rightlocation, identify value and prepare to bid or make an offer * Protect your investment -- discover what it's like to be alandlord, learn how to insure your property and manage risk * Build a solid portfolio -- uncover the secrets to growingequity, diversifying and building an income stream Open the book and find: * How to invest in residential and commercial properties * Information on using a buyers' advocate * Advice on shopping for a mortgage * Tips for owning property with SMSFs * Steps for signing contracts and leases * Help with keeping on top of your paperwork * Secrets for growing your profits
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Table of Contents
Welcome to Property Investing For Dummies, 2nd Australian Edition! We’re delighted to be your tour guides. Throughout this book, we emphasise three fundamental cornerstones that we believe to be true:
Property is one of the three time-tested ways for people of varied economic means to build wealth (the others are shares and small business). Over the long term, you should be able to make an annual return of around 7 to 9 per cent per year investing in real estate.
Investing in real estate isn’t rocket science but does require doing your homework. If you’re sloppy with your legwork, you’re more likely to end up with inferior properties or to overpay for a property. Our book clearly explains how to buy the best properties at a fair (even below-market!) price. (Although we cover all types of properties, our book concentrates on residential investment opportunities, which are more accessible and appropriate for non-experts.)
Although you should make money over the long term investing in good real estate properties, you can lose money, especially in the short term. Don’t unrealistically expect real estate values to increase every year. When you invest in real estate for the long term, which is what we advocate and practise ourselves, the occasional price declines should be merely bumps on an otherwise fruitful journey.
How This Book Is Different
If you expect us (in property spruiker fashion) to tell you how to become an overnight multi-millionaire, this is definitely not the book for you. And please allow us to save you money, disappointment and heartache by telling you that such shysters are only enriching themselves through their grossly overpriced CDs and seminars, or are likely urging you into their property developments with funding from their related-party loans.
Property Investing For Dummies, 2nd Australian Edition, covers tried and proven real estate investing strategies that real people, just like you, use to build wealth. Specifically, this book explains how to invest in houses, units, apartments, small apartment blocks, commercial properties (including office, industrial and retail) and raw (undeveloped) land. We also cover ‘indirect’ real estate investments such as real estate investment trusts (REITs) that you can purchase through the Australian Securities Exchange or a real estate managed fund.
Unlike so many real estate book authors, we don’t have an alternative agenda in writing this book. Many real estate investing books are little more than promotional materials for high-priced seminars or developments the author is selling. The objective of our book is to give you the best crash course in property investing, so that, if you choose to make investments in properties, you may do so wisely and confidently.
Whenever authors sit down to write books, they have particular audiences in mind. Because of this, they must make some assumptions about who the reader is and what that reader is looking for. Here are a few assumptions we’ve made about you:
You’re looking for a way to invest in real estate but don’t know what types of properties and strategies are best. (We’ll show you.)
You’re considering buying an investment property, be it a house, a unit, an apartment or flat, a small apartment or unit complex or an office building, but your real estate experience is largely limited to renting an apartment or owning your own home.
You may have a small amount of money already invested in real estate, but you’re ready to go after more or bigger properties.
You’re looking for a way to diversify your investment portfolio.
If any of these descriptions hits home for you, you’ve come to the right place.
How This Book Is Organised
We’ve organised Property Investing For Dummies, 2nd Australian Edition, into five parts. Here’s what you can find in each.
Part I: Understanding Real Estate as an Investment
In this part, we explain how property compares with other investments, how to determine whether you’ve got what it takes to succeed as a real estate investor and how much money you’ll need to invest in various types of real estate. We cover why your home isn’t really an investment property and why a holiday home can be both home and investment property. We discuss the range of real estate investments available to you — such as residential and commercial properties — and the various ways of buying property in Australia. Finally, you inevitably need to work with professionals, so we also detail how to hire top agents, accountants and other real estate pros.
Part II: Financing: Raising Capital and Sourcing Loans
You can’t play if you can’t pay. This part details how and where to come up with the dough you need to buy property. We explain the common loans available and some not-so-common ways to finance property investment. We share all of our favourite strategies for finding and negotiating the best deals when you need a mortgage. We also look at the new legal area of gearing (using borrowed funds) to buy property inside a self-managed super fund. Finally, we take a look at the ongoing costs of real estate and what you need to consider to cover those expenses.
Part III: Finding and Evaluating Properties
This part is simply about the rules of buying real estate right. We tell you how to determine where and what to buy, and how to value and evaluate investment properties. Here you find out how to choose the best locations and how to project a property’s cash flow. Finally, we take you through the negotiation process, bidding, inspections and settling on your purchase.
Part IV: Operating the Property
After you own a property, you have lots of opportunities to improve its value through managing it well. For starters, this important part covers the basics of being a landlord, and how to find and keep the best tenants and sign solid lease contracts. What you’re looking to buy is an expensive asset and you need to know how to properly insure both the property and yourself. We also reveal many proven methods for boosting a property’s return and value. We won’t let tax headaches get you down as we walk you through how to account for the annual cash flow on your property and the tax advantages of depreciation. We also share strategies for deciding when and how to sell, including the impacts of capital gains tax. Last but not least, we provide some tips on building a property portfolio, as you look at purchasing your third (fourth, fifth, sixth . . .) real estate investment.
Part V: The Part of Tens
This part contains other important chapters that didn’t fit neatly into the rest of this book. Topics we cover in this section include ten ways to increase a property’s return and ten steps to a real estate fortune.
This book is comprehensive, but it isn’t a book of forms. We don’t recommend that novice real estate investors perform their own property management — they should hire professional agents to do this. However, we do include a fairly typical inspection report that you may find useful for checking the status of your properties. For sales and rental contracts, we recommend that you contact local real estate professionals for the forms that are specifically drafted for your state.
Icons Used in This Book
Throughout this book, you can find friendly and useful icons to enhance your reading pleasure and to note specific types of information. Here’s what each icon means:
This alerts you to those who may have conflicts of interest or offer biased advice, as well as other concerns that could really cost you big bucks.
This icon flags concepts and facts that we want to ensure you remember as you make your real estate investments.
Included with this icon are complex examples and interesting technical stuff that you may want to read to become even more familiar with the topic.
This icon points out something that can save you time, headaches, money or all of the above!
Here we’re trying to direct you away from blunders and errors that others have made when investing in property.
Suddenly investing in real estate is much easier with research tools a mouse click away. This icon highlights the most useful sites.
Where to Go from Here
If you have the time and desire, we encourage you to read this book in its entirety. It provides you with a detailed picture of how to maximise your returns while minimising your risks in the property market. But you may also choose to read selected portions. That’s one of the great things (among many) about For Dummies books. You can readily pick and choose the information you read based on your individual needs.
Understanding Real Estate as an Investment
‘. . . and if the real estate market ever nosedives, you can always just live off the gingerbread.’
In this part . . .
Real estate is just one of many available investment options, so, in this part, we compare real estate investing with alternatives you may consider and look at how to fit real estate into your overall financial plans. Property investment is a world of different opportunities that require extensive analysis. We talk you through the different types of properties you can buy and the different methods of buying them, and touch on other property strategies — such as buying and flipping, and property development. We finish off with how to assemble a team of competent professionals to help ensure your long-term property investment dreams can be realised.
Covering the Landscape of Common Real Estate Investments
In This Chapter
Looking at residential properties
Broadening your investments away from home
Getting to know commercial real estate
Examining undeveloped land
Comprehending property trusts
If you lack substantial experience investing in real estate, you should avoid more esoteric and complicated properties and strategies. In this chapter, we discuss the more accessible and easy-to-master property options, from residential to commercial properties and vacant land. In addition to discussing the pros and cons of each, we provide insights as to which may be the most appropriate and profitable for you.
Investing in Residential Properties
Residential property can be an attractive real estate investment for many people. Residential housing is easier to understand, purchase and manage than most other types of property, such as office, industrial and retail property. If you’re a homeowner, you already have some level of experience locating, purchasing and maintaining residential property.
If you’ve been in the market for a home yourself, you know that, in addition to freestanding (detached) houses, you can choose from numerous types of attached or multi-dwelling properties, including units, apartments and townhouses. In the following sections, we provide an overview of why some of these may make an attractive investment for you.
As an investment, freestanding houses usually perform better in the long run than attached housing, units or apartments. In a good real estate market, most housing appreciates, but traditional detached homes tend to outperform other housing types for the following reasons:
Freestanding houses tend to attract more potential buyers — most people, when they can afford it, prefer detached dwellings, particularly for the increased privacy (and space).
Attached housing, or units and townhouses, are less expensive and easier to build — and to overbuild. Because of this potential for surplus properties on the market, such property tends to appreciate more moderately in price.
Land value is the major driver of property prices. The higher the land content, the more likely the capital growth. And a freestanding house, in the vast majority of cases, has a higher proportion of land content than attached housing.
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