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What is Hudson property Investment all about?
Hudson property investment involves weighing up the pros and cons with you before making a decision to add an investment property to your portfolio. This usually begins with looking at your overall investment portfolio to see if a property fits into your asset allocation and is in line with your medium and long term personal goals and objectives.
Once we establish that an investment property is the next step for you, we would look to see what your borrowing capacity is like and what cash flow would be needed to service a purchase.
It is then up to you whether you would like to source your own investment property or use one of Hudsons property referral partners. We have referral partners in Brisbane, Melbourne, Adelaide and Hobart. We are also able to offer suburb reports and capital city statistics to help you make your decision. There is sometimes a referral fee for Hudson (generally not for buyers advocacy or for land purchases) if you use one of our property partners but regardless of whether you use a Hudson source or not, your adviser is here to guide you and to ensure that your cash flow is adequate even when interest rates start to head back up again.
If you are doing up a financial plan with a Hudson Financial Planner, an investment property purchase, sometimes more than one, is often included in these plans, especially for clients with a 15-20 year outlook before retirement.
What is an investment property and what are the pros and cons?
Purchasing an investment property (as opposed to purchasing through property trusts) can add a lot of value to a clients portfolio. It involves the same process as purchasing as your own home BUT any mortgage insurance you pay is tax deductible and all fees and charges are tax deductible. The bank also tends to lend more for an investment property as the total rental is taken into account, which increases your borrowing capacity.
You can also purchase an investment property with an interest only loan, as opposed to paying the principal component of.
The idea here is that you pay as little as possible to hold the property for as long as possible and you capitalise on the growth, starting 3-5 years out from retirement. Starting to sell down properties a few years before retirement means that you are minimising any capital gains tax that you might otherwise have to pay.
There are some excellent advantages to owning an investment property like the ability to leverage far more than you can with shares, and therefore the potential for bigger returns, fantastic tax benefits, greater control over how the property is managed and owning something tangible.
The negatives are the lack of liquidity if money is needed suddenly, the risk of bad or no tenants and the holding risk.
A quality property that was worth just over $100,000 in 1990 is likely worth well over $1m today. Purchasing property is a long term decision but with time and cash flow on your side, a very viable investment strategy.
How do you ensure that you purchase the right type of investment property?
Hudson has long advocated the inclusion of residential real estate investments in the investment portfolios of our members.
Through our relationships with expert property groups around the country, Hudson members have access to a broad range of property investment opportunities. At times, we are able to offer members access to unique and outstanding properties prior to public release.
If you are considering investing in property please look at the criteria below before making your investment:
Hudson’s Property Selection Criteria
1. Timing in Cycle
Purchase property after the growth cycle has commenced.
It makes sense to consider an already growing market. It is noted that the top end, i.e. the more expensive properties / trendy areas, are the first to move in a property boom.
Once the property price rise is noticed, many property commentators and analysts receive a lot of media attention. This is a time when investors are exposed to various forms of ‘education’ on the topic of property investment.
Each cycle is different, being dependent on the particular economic conditions (eg. inflation, unemployment, interest rates) that are present at that time. Differing geographic areas can have vastly different property price performances, based on local economic and demographic issues.
Choosing the right position for your investment property is very important. There are four key inclusions that the area should possess:
Employment growth — population growth supports property demand, which in turn supports property prices. Areas with high employment growth will always attract population.
Micro-economic facilities — parks, cafes, corner shops, bus stops etc. These facilities make the property more attractive and support rental demand. The social changes evident today suggest that many people demand the convenience of local infrastructure.
The micro-economic elements need to be matched to the style of the property and the likely demographic demand sector; for example, trendy area units may require micro-economic facilities that appeal to young professional couples, while houses may require facilities that appeal to families with children.
Macro economic facilities — hospitals, recreation outlets, shopping centres, schools, day care etc.
Access and Egress — the entry and exit routes to an area. It is not advantageous to have a community which is isolated from nearby areas or central locations.
3. Property of the future not of the past
When investing in property, it is beneficial to consider a ten-year window. Appealing to a growing market of the future is essential to ensure demand for the investment property is supported.
The changes in today’s demographics suggest several clear growing markets for real estate are emerging. These target markets include:
- Single parents
- Young professionals
- Ageing sector and;
- In the states that enjoy positive migration (QLD, WA): Nuclear families
It is necessary to determine the features of properties that these target groups require. Identifying the groups where demand will be strongest is only half the story, meeting their needs for accommodation is equally as important.
Specific needs among these groups include:
- Low Maintenance
The price must be right – for the investor AND for the tenant AND for capital growth.
It is very important to remember the most likely long term and relevant underlying demand influencing strong price growth comes from the owner/occupier market.
This market needs to be convinced that your property is better, more attractive, affordable and in the right location. When this occurs, your investment property will rise in value, regardless of investor sentiment.
Consider properties that are priced around the median price for the area, giving the largest possible market for resale. In this way the property will be within reach of the majority of owner/occupiers. Most often, buyers choose an area and then choose a property.
Assuming there has been careful consideration of the area chosen for property investment, the demand for the area will be sound. To ensure your property has the edge, it needs to be in the median or lower price sector.
When discussing median prices, it is important to consider the analysis on an area by area basis. Very often this process is completed with reference to some ‘common knowledge’ or through market comment rather than provided by statistics.
5. Age of property — new versus old
The final consideration of price is the key to sound investment. There must be adequate room for capital growth and clear evidence of future market demand to support it. This, after all, is the sole investment objective.
The age of the property is an important consideration for investors. Each investment needs to be assessed individually, with consideration of the investor’s needs and risk profile.
There are a number of reasons why new property is recommended to investors:
- New property provides attractive gearing benefits through generous depreciation allowances.
- The maintenance requirements of new property are expected to be significantly lower than older properties.
- New property often has a better rental demand than similar properties that are older.
- New properties often achieve higher rental returns than older properties.
Regardless of all other aspects consideration should always be given to the location of the property. If the property is not in an area where future demand is expected, it is not going to perform well, even if the property is brand new.
Overview of the Brisbane Property Market: It’s lucrative and It’s performing very well
The Brisbane property market has experienced a 19.87% increase in growth over the last year.
Auction clearance rates have consistently been in the 70% range indicating that there are more buyers than there are sellers, and this always leads to the highest property prices. The questions is, will this strong performance continue over the next 12 months and beyond? I think we can all agree that COVID has positively impacted property prices in Brisbane. A lot of our growth has come from buyers moving to Brisbane for the lockdown free lifestyle.
Brisbane prices are still considerably more affordable when compared to the other east coast capital cities and as one of my good Melbourne friends said to me the other day ‘Brisbane has grown up, there is good coffee, a good vibe and the best beaches … All we need is a Japanese shinkansen (bullet train) to get us to the coast in record time!
With international travel back, jobs on the rise and substantial infrastructure spending on place as Brisbane looks ahead to the Olympics, the future growth of property looks promising.
There are some cautionary flags however.
I want to remind clients of, and I know I keep mentioning this, but interest rates will head up, and all asset classes are cyclical. When purchasing or looking to purchase a property, wherever it may be, you have to factor in a rise in rates. Even if you are fixing in now and can guarantee these amazing rates for a number of years, chances are you will be coming out of your fixed rate into a higher interest rate environment. Inflation is a key indicator of a rate rise.
With a more substantial rates increase, there is the expectation that there will be people who have over extended given the low interest rate environment. This will mean that properties may have to be sold as people can non longer afford to hold them. This would increase the supply and therefore buyer demand would not be as strong.
The rental demand in Brisbane may however offset this increase in supply and therefore it may not have any effect on Brisbane property, but it is important to understand that property, like all asset classes, is cyclical. It is the time in the market, not the timing, although if you time it right it helps!
There is talk of 2022 being the year of cash, with both property and shares currently being at all-time highs. That being said, there are opportunities within property and shares if you look for them, and as always, it time in the market that counts.
So, whatever happens, be prepared to ride out the next down cycle. We all know one is coming, it’s just a matter of when.
Self-Managed Super Funds for Property Investment
Many people that set up a SMSF do it because they want to buy property and this is something that is not possible within an industry or retail Super fund. There are various pros and cons relating to buying property in a SMSF compared to buying it in your personal name. Read our Superannuation adviser section to learn more.
Step by Step process for Property Investment Planning
Step 1: Reach out to one of Hudson’s friendly and expert financial advisers by calling 1800 804 296 to book an initial meeting via telephone or zoom. Matt Paul is our Operations Manager and he will co-ordinate a time with you.
Step 2: Our adviser will then call you at the appointment time. This is where we will get to know you a little better and we will ascertain what your borrowing capacity is. We will then look at putting a strategy together that will incorporate an investment property purchase into your overall portfolio. This strategy will incorporate cash flows and allow for an increase in interest rates.
Step 3: It is then time for you to find your property. We can help put you in touch with agents in different capital cities, or you can do the leg work yourself. When you have found the property that fits your portfolio we will guide you through the investment loan set up with our in house mortgage brokers. Once the property has been purchased and your loan has been settled we can review your personal insurances to make sure that you are adequately covered.
Step 4: A review will then be set up yearly to check on your loan status and your cashflow.
FAQs for Property Investment Advice
Discover our most commonly asked questions relating to property investment at Hudson.
Is it worth investing in Brisbane property?
Yes, With international travel back, jobs on the rise and substantial infrastructure spending on place as Brisbane looks ahead to the Olympics, the future growth of property looks promising.
How much can you borrow for property investing?
We would work with one of our in house brokers to determine what your borrowing capacity is and what your cash flow can maintain.
Can I use my super to invest in property?
Yes you can set up a Self Managed Super Fund in order to purchase an investment property. Strict guidelines need to be adhered to, your Hudson adviser can outline these for you.
How does Brisbane compare to other major capital cities?
Brisbane has outperformed every other major Capital City in Australia in the last 12 months. This is partly due to our static performance for the last 10 years in comparison to other cities, partly due to our fee lifestyle during COVID and partly due to the increase in promised infrastructure spend thanks to the Olympics.
In Brisbane, is it worthwhile investing in a family house, townhouse or apartment?
House and land within the 10km ring will yield excellent growth, but the entry price is higher and the rental yield not as high as a new apartment or townhouse.
A townhouse or apartment that offer what has now been coined the new COVID lifestyle features, ie green spaces, coffee houses, bikeway access, walks along the river also will yield excellent growth and offer really good rental returns.
The cash flow required to maintain a property has to be factored in also as this adds onto the cost base of the property when looking at what gains have been made, so although growth may not be as strong in an apartment, often when costs are factored into the base line, the apartments don’t always come out worse, it just depends on what lifestyle factors and therefore what future demand is there for the apartment or townhouse in question.
What are the risks involved in property investment in Brisbane?
The lack of liquidity if money is needed suddenly, the risk of bad or no tenants and the holding risk. A quality property that was worth just over $100,000 in 1990 is likely worth well over $1m today. Purchasing property is a long term decision but with time and cash flow on your side, a very viable investment strategy.
Contact Hudson for Property Advice today
The right investment properties can be an integral part of your wealth creation process.
Consider working with Hudson Financial Planning as your adviser for all your future investment properties in Brisbane and Australia.
If you wish to discuss adding an investment property to your wealth portfolio this year, please book an appointment with your Hudson adviser first to discuss your options on 1800 804 296 or enquire online with us today.
Hudson Property Alert
The Hudson Property Alert is a special email bulletin featuring Hudson recommended property investment opportunities from around Australia that meet our five point selection criteria for maximum growth potential over time.
Hudson recommended properties continue to be outstanding investments that are researched by professionals to deliver well priced, well positioned properties for growth and rental potential, and now our recommended properties are award winning as well.