Finding the Keys to a Nest Egg

Article excerpt

NOT ALL types of property investments may lead to high returns.

Which type of property suits your investment portfolio?

Successful property investment is an art in itself - it is critical you invest in a property using sound underlying investment principals that suit your needs and time frame, advisers say. There is no such thing as a one-size-fits-all property investment strategy either. But there are some clear guidelines to follow to ensure your investment delivers the returns you are looking for.

Property investors are active

With the current global economic uncertainty reflected in local shares, property has become the perceived investment safe haven. In terms of capital growth, property has continued to deliver in recent years, too.

Monique Sasson Wakelin, director of Wakelin Property Advisory, says there has been a noticeable rise in property investment since mid 2009, with investors behind around 30 to 35 per cent of all property sales in and around the city at the moment.

Property investors account for an even greater proportion of home loans by value Co around half Co because they usually put less equity into their property purchases than owner-occupiers, she says.

Long-term proposition

Paul Moran, principal of Paul Moran Financial Planning, says some people don't understand that, these days, direct property investment is an even longer-term proposition than share investment because rental yields have "dropped so dramatically".

"Rental yields in capital cities are down to 2 to 2.5 per cent in some areas," says Mr Moran. "I tell my clients that direct property investment is a 10 to 15-year proposition, possibly up to 20 years, to ensure you get an income return."

But he is a great supporter of direct property investment for the right people. "If they come to me with enough money, and they can still make their super contributions, pay their own mortgage repayments and comfortably cover the costs of their own lifestyle, then I tell them they should go for it."

Equity poor, cash-flow rich

So let's assume you already tick all of those boxes, what next? Mark Armstrong, director of Property Planning Australia, says the first thing he determines with his clients is what is most important to them: capital growth or cash flow?

Generally, those that are younger Co 30 to 45 years old Co are cash-flow rich as they are entering the strong working and earning phase of their lives, but equity poor as they are yet to build real equity in their portfolios, he says.

"This is where we look to use gearing and negative equity techniques to build equity for them more quickly. We would then look for a capital growth property for them, close to the CBD without going into it, with a high land to asset value."

Equity rich, cash-flow poor

Mr Armstrong says people closer to retirement are generally the opposite as they may have eased back to working three days a week, have substantial investment assets, but are at a time of their lives when they don't want to be borrowing large sums of money. …