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Low interest rates are giving many investors an added incentive to look at investing in real estate —either directly or through their SMSF. We look at some of the things you should look out for before you sign on that dotted line.
Do – Define your goals: A ‘successful’ property investment depends on your goals. For example, are you looking for a high level of rental income? Or are you more interested in long-term capital gains? A clear strategy of what you are hoping to achieve can help you decide where to look, and what types of properties suit you best.
Don’t – Over-borrow: When interest rates are low it’s easy to fall into the trap of over-borrowing. But real estate is generally a long-term investment, and it’s likely you will experience a range of interest rate scenarios over time – something your budget needs to cater for.
Do – Reassess your insurances: Increasing your level of debt is a good reason to reassess your life insurances. This particularly applies to death and total and permanent disability (TPD) cover, as one of the main goals of these insurances is to extinguish debt if you can no longer service it.
Do – Diversify: If you already own a home, putting of all your resources into real estate could leave you more exposed to a downturn in the property market. Make sure you discuss your diversification strategy with your financial adviser before you invest.
Don’t – Invest for tax reasons alone: The lure of tax deductions can be a distraction when you’re investing in property. But don’t get too caught up in the tax savings to realise how much you’re actually spending on things like stamp duty, legal costs, renovations etc. It may take many years of capital growth to recover those costs.
Do – Talk to your financial adviser: While real estate can be an important part of a diversified investment portfolio, you need to be careful about how you go about it. Ongoing advice from your financial adviser is essential to ensuring your property investment meets your needs.
Source: Andrew Stevenson, Insights Spring 2013, MiQ Private Wealth