How You Could Achieve Financial Freedom Through the Property Market

Personal Finance · 03 May 2018

Owning your own home provides security for you and your family. But owning investment properties provides future financial freedom.

Owning your own home provides security for you and your family. But owning investment properties provides future financial freedom. If you want to create a better future for you and your family, real estate offers opportunities for extra income.

There are many ways that you can invest in the property market. With research, managing your existing finances and a bit of hard work, you can grow your income and ensure a secure future.

Property Capital Gain

Capital gain is the profit made when selling a property. If capital growth is your goal, you want to buy a property for as cheaply as possible, and then sell it for as much as possible. This is the ultimate in passive income. You simply buy the property, carry out a minimum of maintenance, and watch the property appreciate. This is a simple process that requires minimal long term effort. Any rent made in the period between buying and selling needs to cover expenses and the mortgage.

However the challenge here is predicting which areas will experience increased property growth. You must be aware of what is happening in the property market and you need to conduct research to buy the right property. Pick a home in an area that is undergoing gentrification and growing in popularity. Research where new infrastructure or projects such as schools or shopping malls are being built. These areas experience the most capital growth.

You will need to take taxes into account when deciding if this is a viable way to make money. The Bright-Line test requires you pay tax on any capital gains you have made on residential properties. This applies if you have purchased a dwelling, not used it as your primary residence, and re-sold it within five years.

Buy in Gloom, Sell in Boom

Many people get this back-to-front, and end up buying a property in a buoyant market. Take your time and buy when the housing market is in a slump. This way, if you buy at the lowest possible price, you stand to be able to make the biggest gains. When the market is booming, that is when to sell to maximise your profit.

Subdividing Can Increase Profit

You may also buy a property intending to subdivide it. Done right, this can create a large profit but the process can be expensive and stressful. You will need to make sure there is a demand for small land parcels in the area. Popular school zones or inner-city properties are ideal for subdividing. Check with the local council to ensure the land can be subdivided. There can be restrictions and covenants on the land. Once you have established there is a need and it is possible, the subdivision process itself can cost up to $50,000. Lawyers, accountants, engineer and council fees can stack up very quickly.

If you still think that subdividing is financially feasible, also consider building on the new site. This does have extra expense and stress but can make a lot more profit.

Create Cash Flow by Renting Your Property

This is the basic strategy that most landlords have. You buy a home and rent it out for an amount that pays off the mortgage and makes you money. First of all, you’ll need to figure out how much it will cost to cover the mortgage and keep the house maintained. Write down all the costs related to the house purchase and expenses. This includes maintenance, mortgage and operational costs. Then, decide how much income you want to make each year from the property. Then, divide this amount by 52 to calculate the weekly rent you will need to charge to service the costs.

Your mortgage repayment per year

$15,600

Insurance/ professional fees such as property managers

$1,800

Body corporate fees and rates

$1,500

Home maintenance/ repairs

$12,000

How much money you want to make a year

$10,000

Divide figure by 52 for weekly rent you will need to charge in order to achieve this goal

$787

For the suburb and the type of house, is this rent feasible? Will potential tenants pay this? If not, it’s not going to create the income you need.

Although with this type of strategy you will be less concerned about capital gain, you still need to consider the Bright- Line test.

Renovate and Resell for Profit

It’s in our Kiwi DNA to DIY. From splashing a bit of paint around through to more ambitious projects, putting in some time, money and elbow grease can increase the value of a home. Selling the home for more than you purchased it for is a good way to buy a new, larger home, or to buy another doer-upper and pay a chunk off your mortgage.

Once again, you need to do your calculations to decide if this is worth it financially. Some renovations reap better financial rewards than others. To save money, you can decide to do the labour yourself. If you obtain building materials for discounted prices, you can gain significant cost savings.

If you want a quick turnaround for minimal investment, then a quick coat of paint and a thorough tidy-up of the garden are the first things to do. Increase the street appeal by clearing the front yard and painting the house and garage. A simple replacement of the letterbox can change first impressions and how a potential buyer is going to feel about the house.

Buyers know the value of a modern kitchen and bathroom, but these areas of a house can be expensive to refurbish. They can also uncover hidden problems within the home such as leaks and problematic plumbing. A full redesign and renovation may not be required. The cheap and quick option may only need cosmetic changes. Replacing drawer and cupboard handles can modernise the kitchen without adding a lot of cost.

Renovating a home is an excellent way to make money on your property. Like everything else, do your research first and don’t invest time and money into improvements that don’t increase your profits.


Recent Posts

Where there's a wedding – there's a way
Where there's a wedding – there's a way

Tegan’s partner popped the question on her birthday, 2019. Long before she, or any of us, knew what 2020 would be like.

Read article

Your guide to insurance
Your guide to insurance

Let’s take a walk through the most common types of insurance:

Home and contents insurance, if you own your own home Contents insurance, if you’re renting

Read article

Sanity savers for the new work year
Sanity savers for the new work year

Does it already feel like your holiday was months ago? January can be a mixed blessing. The weather’s great, but you’re trapped inside at your

Read article