Ingredients Of A Good Personal Financial Plan – Part 2 Property

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Raffi Pailagian
Financial Planner / Managing Partner

Ingredients of a Good Personal Financial Plan – Property

Property is an integral part of any good personal financial plan.  Property can mean a range of different investments – commercial, retail, industrial, residential and even property trusts.  So what are your options, and their implications?

Why You Should Include Property in your Financial Plan

There are a number of reasons why including property in your personal financial plan is worthwhile:

  • It is less volatile than other investments, whilst at the same time providing solid gains
  • It provides both growth and income
  • It is more set-and-forget than other investments if you have an experienced property manager in charge
  • It can provide tax benefits if it is managed correctly

The Property Market Right Now

Like everything else, Covid has certainly had an effect on the property market.  Wherever you look there are stories about the declining demand for commercial properties[i], or the falling rental returns on residential property[ii].

One thing is certain, we are living in uncertain times.  This makes it all the more important to do your due diligence and get the right advice when you it comes to including Property in your Financial Plan.

Your Family Home

While it is true that your family home does not make up part of your taxable or assessable assets, it generally constitutes a large portion of your overall net wealth – particularly when you live in Sydney, where property prices are amongst the highest in the world. Depending on the researcher, Sydney property is ranked anywhere from 16th most expensive in the world[iii] to 3rd most expensive[iv].

As your single most valuable asset, your home can make a huge difference to your position, particularly when you are nearing retirement.  And, because it is not assessable, it can provide you with a tax efficient place to invest.

If you are thinking that in retirement you might like a sea or tree change, your family home could end up providing you with a significant windfall, so always consider this investment when assessing your net worth.

Investment Properties

There are a number of different types of property you can invest in and each has it’s pros and cons:

  • Commercial – office buildings and hotels
  • Retail – shops and restaurants
  • Industrial – warehouses and factory units
  • Residential – domestic rental properties

The one thing they all have in common is that if you are considering investing you should look at:

  • Location, Location, Location – If it’s in the right location you are much less likely to go wrong, or to have an untenanted property
  • Tenants – what is the tenanting history of the property, and how long have the current tenants been there
  • Flexibility – What are the other potential uses for the space should the tenants leave – is it a space that will appeal to a range of tenants?

Investing in Property without Buying Property

Something to think about when considering direct investment in property is the high entry and exit costs.  This makes direct investment ideally suited to long-term rather than short-term goals.

If you are still keen to invest in property, but have short-term goals, like impending retirement, property trusts provide an alternative to high-cost direct investment.  There are a wide range of both listed and unlisted property trusts that can give you the benefit of property investment without some of the downsides.

One last thing…

Consider all your options carefully before investing in property.  And don’t get too hung up on waiting for the market to ‘bottom out’.  Even the experts get this wrong.  By all means, consider the movement of prices, but it is more important that the timing is right for you, than for the market.

Within our next article in the Ingredients of a Financial Plan series, we will look at mortgages and how you might fund your Property investments.

When you want to chat about getting started on a Financial Plan, or looking at the effectiveness of the one you already have, please contact us on 02 9976 3388 or click below and we’ll be in touch.

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