Suite 13.03, Level 13 213 Miller Street North Sydney NSW 2060

Investment

Investment

Key Property Solutions is at the forefront of the investment property industry, using more than 30 years of contact building and networks to acquire leading property investment stock significantly below retail value. As recognised property advisors within the industry, we work with a select group of quality boutique developers who rely on our experience and expertise in pricing their properties.

Taking into account the market data and statistics collaborated from our extensive research analysis; Key Property Solutions only recommends properties that meet our rental yield and capital growth criteria which is determined by the selling price.

Pricing is based on our due diligence of keeping in the loop with local agents; developers; builders and councils, our inherent knowledge of prices based on the thousand plus properties we have recommend and sold and the rental returns the property can expect to yield.

Our property recommendations relate to areas that we know and understand well, with strong emphasis placed on resale values and exit strategies. Over the long term a well-chosen property can be an excellent wealth creation tool, so knowledge is a key factor to a successful property transaction.

Cash Flow Properties

These are properties with a low capital growth profile 4-6 per cent and a high rental yield (return) profile of around 6-10 per cent. Occasionally the capital growth can be very high for a short while.

Advantages:

  • Positive or neutral cash flow
  • Use surplus cash flow to pay down principal and obtain more equity for future investment
  • Small entry price – easy to get started
  • Lower stamp duty & land tax
  • Occasional good equity jump due to demand for high yield properties
  • You can’t lose with money in your pocket (unless you get in too late)
  • Easier to get a full-doc loan

Disadvantages:

  • Pay tax along the way (money in the taxman’s pocket is not going to create wealth for you)
  • Slower capital growth over longer period
  • Usually regional or outer areas which can be quite sensitive to economic cycles
  • Harder to get low-doc or no-doc loans for some regional properties due to postcode & population
  • Lower leverage to reduce return
  • Potential higher maintenance of property
  • More tenancy problems dur to social economics

Growth Properties

These are properties with a higher capital growth profile of 7-10 per cent (and occasionally over 12 per cent for a short while) and a lower rental yield profile of 3-5 per cent (occasionally below 2.5 per cent).

Advantages:

  • Tax benefit; negative gearing and delayed CGT
  • Usually consistent capital growth over longer term
  • Typically inner and high population areas which are not affected as much by economic cycles and interest rate fluctuations
  • Easier to get low-doc or no-doc loans
  • High leverage available
  • Potential lower maintenance of property and less tenancy problems due to better social economics
  • Equity increase can be available to invest futher

Disadvantages:

  • Negative cash flow if you take on a normal mortgage at a high leverage level
  • Usually more expensive than cash flow properties – potential entry barrier for beginners
  • Higher stamp duty and land tax
  • No guarantee of capital growth every year
  • Harder to get a full-doc loan to access a cheaper interest rate mortgage as your portfolio grows

Houses

Advantages:

  • More consistent growth over long- term in established areas
  • You usually own the land
  • You have greater control over what you want to do with the land
  • High land content for better future growth if it is in established areas
  • Usually easier to get finance
  • More room for value adding and modification
  • Town houses are gaining popularity with smaller families and retirees

Disadvantages:

  • Usually lower rent as a percentage of the value
  • Can be higher maintenance
  • Can occasionally be difficult to get decent rent for large houses
  • Less security and facility

Apartments

Advantages:

  • Higher rental as a percentage to price
  • Less hands-on maintenance
  • Good growth in fully built up areas with height limit
  • Increasingly popular with generation Y Meets the demographic trend of smaller family size

Disadvantages:

  • Less consistent growth in areas that are not fully built up
  • Body corporate fees
  • Less control
  • Less room for value adding
  • Can be hard to get good finance for company title properties and very small apartments

New Properties

Advantages:

  • Higher tax benefit
  • No maintenance
  • Better tenant appeal due to new design, technology, etc.
  • Easy to rent if the asking rent is not to high

Disadvantages:

  • Lower capital growth in comparison to established properties in the same area for a few years
  • Higher purchase price due to premium for being new
  • Usually get hit first if the market slows
  • Very little room to add value
  • Price set by developers may be artificial or heavily influenced by organised marketing effort

Old Properties

Advantages:

  • Purchase price usually set by individual vendor without commercial manipulation
  • More solid growth than new properties due to heavier ‘land content’ component
  • Less price fluctuation than new properties in the same area
  • Potential to add value

Disadvantages:

  • Higher maintenance
  • Not as appealing to tenants
  • Future requirements for renovation
  • Lower than usual rent if the property is too run down

High Price Properties

Advantages:

  • Less number of properties to deal with
  • Less ongoing soft costs such as bookkeeping, etc.
  • Less work looking for them
  • Usually in expensive suburbs that have solid growth performance
  • More trustworthy tenants

Disadvantages:

  • Luxury items get hit first during bad times
  • High price properties in low price suburbs may have slower growth due to lack of demand
  • Harder to get finance – lower leverage
  • Higher stamp duty and land tax costs

Low Price Properties

Advantages:

  • More stable performance closer to the suburb’s median price
  • Lower price properties in established suburbs can handle downturns better
  • Better diversification for rent and resell
  • Lower stamp duty and land tax costs

Disadvantages:

  • More work finding them
  • More ongoing soft costs such as legal and accounting expenses
  • Not as appealing to tenants
  • Lower than usual rent if the property is too run down

Advantages:

  • Potential gain before settlement
  • Stamp duty saving
  • Available to overseas investors
  • Little money down through bank guarantee, deposit bond or builder’s terms

Disadvantages:

  • Potential loss of deposit plus gap
  • Buying without seeing the site
  • Purchase price can be set artificially
  • Purchaser can be influenced heavily by organised marketing effort
  • Area and products may not be tested – performance unknown

Serviced Apartments

Advantages:

  • Hassle free
  • Usually higher rental if managed properly
  • No need to worry about tenants and maintenance yourself
  • Desperate sellers

Disadvantages:

  • Harder to get finance due to commercial contract
  • Can be hard to resell
  • Growth is tied into yield and how well it’s operated, not necessarily reflecting local property prices
  • Value of the property is affected by the financial viability of the operator

Display Home

Advantages:

  • Usually built to a better quality spec
  • Higher rent guaranteed for the contracted period
  • No need to look for tenants or do any maintenance

Disadvantages:

  • Can be overprices to compensate for guaranteed rent
  • Can be hard to get finance from some lenders due to valuation and commercial arrangement
  • Display operators financial viability can affect the guaranteed rent
  • Property usually in outer areas with slower long term capital growth

Student Accommodation (Managed)

Advantages:

  • Higher rental if managed properly
  • No need to worry about tenants and maintenance yourself
  • Affordable purchase price

Disadvantages:

  • Can be hard to resell sometimes due to its special purpose
  • Growth is tied into yield and how well it is operated, not necessarily reflecting local prices
  • The value of the property is affected by the financial viability of the operator

Advantages:

  • Potential good profit above cost
  • You create the equity instead of waiting for it
  • Potential to get finance and capital based on the deal instead of your own capacity
  • Allows a lot of creativity to create value
  • Multiple exit strategies to make money
  • Excitement and pride as you can call yourself a developer

Disadvantages:

  • Inefficient use of your money due to long processing time
  • Easier to make a loss if you don’t know your craft
  • Planning, building, finance and selling risk
  • Requires larger capital base than is usually estimated
  • Requires a high level of commercial and people skills
  • Lower income while holding the site for permit

Advantages:

  • Very little or no money down
  • Positive cash flow
  • Instant equity on entry and/or exit
  • You can combine other property strategies

Disadvantages:

  • It is necessary to think hard and work hard
  • You have to spend more time learning
  • Difficulty in managing investor, vendor, real estate and tenant/purchaser
  • You need to be very entrepreneurial
  • Extra legal and accounting expenses

Advantages:

  • Instant increase of equity for further investment or better risk management
  • Most money paid to the ‘land component’ to ensure solid future growth
  • Instant increase of rent for better cash flow
  • More efficient use of funds
  • Great tax benefit
  • Lower town planning and building risk
  • You can buy under market value sometimes

Disadvantages:

  • A lot of work of you do it yourself or a lot of management if done by others
  • It takes time to find the right property that can make the numbers work
  • Easy to underestimate the time, cost and work involved in a renovation
  • The increase of equity and rent may not be obvious enough to justify the cost and effort

Firstly, you always need to have a defensive strategy in place. A defensive strategy will ensure that you get more predictable results and are guaranteed not to lose. If you incorporate this type of strategy into your property system you will be less emotional and more consistent. It also means you will always make good use of your time which has to be a major consideration for any investor.

Secondly, you should use offensive strategies at the right time. If you start with nothing or very little you can start with more offensive strategies to build your equity and master one thing first. We would suggest focusing on one strategy initially and become very good at it – this is your best chance to make higher amounts of wealth before becoming too diversified and defensive.

Be careful though. The time to consider adopting an offensive strategy to take advantage of a great opportunity is only when you are sure it will not affect your overall stability. When your time comes don’t hesitate to speak to your investors direct finance strategist for some practical advice before taking the plunge.