I am the regular property columnist for Rex Airlines, the largest regional airline in Australia. Here is the August edition for your reading!
“Property Talks – Investment Strategies”
For this month’s property column, we have tracked down Chris Gray, well known property guru and self confessed” lifestyler”. Chris comes with a wealth of experience having personally built a personal portfolio in excess of A$10m. As well as appearing regularly on Sky Business News, he is the CEO of Empire, a company that builds property portfolios for time-poor professionals – searching, negotiating and renovating on their behalf.
We take this opportunity to quiz him on property investing strategies…
MT: Why do you think property is good strategy to build wealth?
CG: In summary I believe property investing is a great way to build wealth because it is typically a safe, solid asset. It is tax efficient as you get a tax rebate on the cash flow losses and your capital gains are tax free until you sell. In the meantime you can leverage the equity.
As with all investments, property does rise and fall as other economic factors change. Property tends to rise for a number of years, fall slightly, flatten for a couple of years and then it rises again. So the key with property is to have enough cash flow to support it in the short term, as it’s almost guaranteed to rise in the long term
MT: There’s an ongoing debate in property circles as to whether you are better off investing in positive cash flow property (which gives you a high rental yield) or negatively geared or negative cash flow properties (which typically give you a high capital gain). What are your thoughts on these two strategies?
CG: Negatively geared properties are generally closer to major cities and might typically have a 5% rental yield and 10% capital gain (compared to typically 10% rental yield and 5% capital gain in a positive cash flow property). The argument against them is that there is a limit on how many you can hold as they drain your cash flow. High income earners can fund this through spare cash and you can always use the capital gain to fund the cash flow by simply refinancing. These properties are great for creating wealth because by definition their prime aim is to grow in value.
The main reason that the majority of the population choose to invest in positive cash flow properties is the fact that they cannot personally cash flow the $difference between the rent and the mortgage or do not want to use the refinancing option.
MT: Another popular debate is around whether you should buy a house or unit. What do you think sits behind these different views?
CG: The saying ‘land appreciates and buildings depreciate’ gives people the impression they should always buy houses over units because houses have a greater land component. Land is a scarce resource and therefore rises in value according to a corresponding rise in demand.
Logic then suggests to always buy a house.
However, if you go to some suburbs, you will find that the rental yield on houses is significantly less than units. So whilst the house should give you more capital growth than owning a unit in the same suburb you need to be able to cash flow the bigger loss.
I tend to buy houses or units depending on the median price of property where I am investing. I would typically buy a unit if I was investing in Sydney or Melbourne but a house if I was investing in Brisbane or Perth as that’s where 80% of the population tends to live in those cities.
MT: When should people buy property and what are your views on the current property market?
CG: Unless you are at the peak of the market, my view is that you should buy when you are in a financial position to do so and can afford to cash flow it for the next few years. Picking the market probably means you will wait too long and miss out on growth. So buy when you can!
In terms of the current market, of course it is an interesting time. If you have chosen the right type of property then the market is performing solidly i.e. many median priced properties 5-15kms from the major cities. The luxury market and some of the outer suburbs where all the houses look the same are suffering. The fundamentals are still solid and of course with interest rates at historical lows, the cash flow issues of owning properties are greatly reduced. We are favouring Sydney, then Melbourne at the moment!
MT: Any final thoughts that you want to give readers?
CG: Different people prefer different property investment strategies depending on their knowledge, attitude to risk and how much they want to be involved.
I would always suggest that people build their knowledge and get some personal advice to define a strategy that suits their profile.
Whilst research is great, doing something is nearly always better than doing nothing.
Mark Taylor, our regular property columnist, is Managing Director of ‘Keys To Success Club’, a must-have resource for anyone serious about property. www.keystosuccessclub.com/property
If you are interested in hearing more from Chris Gray, he is currently giving away FREE copies of his latest book “The Effortless Empire” Simply visit www.yourempire.com.au
