Jonathan Cattana

Property as an investment provides both income and growth. When holding direct property as an investment, it may provide reasonable capital returns over the long term through rent. Income is received when you rent the property out. Meanwhile, the property itself increases in value.

However, for income from this investment to be consistent month after month, you need to ensure that the investment property is always tenanted and maintained. And, if you stop pouring money into maintaining property, it literally falls down around you and hence loses value.

There are other forms of property you can buy. For example, a non-residential property asset within a vehicle called a listed property trust. Here, a fund manager will purchase a mixture of property assets in various sectors and place them into one portfolio such as commercial, industrial or even leisure properties. When you invest in a listed property fund you buy what is called a unit—a small portion of ownership in that property portfolio, you do not own the whole property. Australian fund mangers have been successful with industrial property in the past and are now looking to invest abroad – internationally. However, the same requirement applies to industrial and commercial property as residential property, the property needs to be securely tenanted and regularly maintained to be a good investment.

What about your own home you ask. Well, your home means shelter, but not income. However there is strategy in the next chapter that can turn around your home loan (a bad debt) into good debt.

There are certain limitations with property:
1. Bad tenants who damage the property, non-paying tenants and property un-tenanted for more than a few weeks.
2. Buying and selling property is expensive. You may need to outlay costs such as valuation fees, stamp duty, agents commission, costs of advertising and loan costs to name a few.
3. You need to do your research to know the value of what you are buying or selling.
4. Other potential land taxes.
5. Property is not liquid meaning that you may not be able to sell it quickly if you require money urgently. Settlement of a sale often takes six weeks (at least in New South Wales).

What is the real return on property?
Not many people actually go to the trouble of working out the true yield on their property investment. To do this they need to add in all the extra costs of maintenance, fees, rates and possibly months where there are no tenants paying you an income.

When you sell any asset, the net gain is:
Original investment + purchase cost + additional cost of maintenance (in this case, rates, taxes etc.) – income received + final sales cost (stamp duty, legals etc.).

Despite all this, property definitely has more growth than cash and fixed interest, but not as much as shares.

Shares are my preferred asset class for growth and a growing income return. My strategy to help you fund your private school fees is based on this asset class.

When you purchase an insurance policy outside of superannuation, most life insurance companies offer the choice of paying stepped or level premiums. Ask your adviser to explain and explore the choice between these two options.

Basically, a stepped premium increases each year depending on the age of the insured and level premium will only vary if the life company changes their product or increases their premium rates in line with inflation.

So, if you choose to pay your premiums now on a level basis it will be more expensive from day one. If you pay stepped premiums, every year the premiums will move higher with your age because as you get older, your chances of having an illness is higher.

With level premiums you may pay more now, but in the long run the policy is less expensive, when at a time you probably most need it, that is, as you get older. In making this decision you must work out how long you will require any of the personal insurance covers you will need. It’s a fact of life that as we grow older the likelihood of a claim will increase. Also don’t be too short-sighted on how long you will need it for, always be generous with your financial time horizon.

For example, Mr Evans is a non-smoker and earns $85,000. This graph shows his income protection on stepped versus level premiums. As you can see, when Mr Evans turns 50 the stepped premiums become more expensive.

Property as an investment provides both income and growth. When holding direct property as an investment, it may provide reasonable capital returns over the long term through rent. Income is received when you rent the property out. Meanwhile, the property itself increases in value.

However, for income from this investment to be consistent month after month, you need to ensure that the investment property is always tenanted and maintained. And, if you stop pouring money into maintaining property, it literally falls down around you and hence loses value.

There are other forms of property you can buy. For example, a non-residential property asset within a vehicle called a listed property trust. Here, a fund manager will purchase a mixture of property assets in various sectors and place them into one portfolio such as commercial, industrial or even leisure properties. When you invest in a listed property fund you buy what is called a unit—a small portion of ownership in that property portfolio, you do not own the whole property. Australian fund mangers have been successful with industrial property in the past and are now looking to invest abroad – internationally. However, the same requirement applies to industrial and commercial property as residential property, the property needs to be securely tenanted and regularly maintained to be a good investment.

What about your own home you ask. Well, your home means shelter, but not income. However there is strategy in the next chapter that can turn around your home loan (a bad debt) into good debt.

There are certain limitations with property:
1. Bad tenants who damage the property, non-paying tenants and property un-tenanted for more than a few weeks.
2. Buying and selling property is expensive. You may need to outlay costs such as valuation fees, stamp duty, agents commission, costs of advertising and loan costs to name a few.
3. You need to do your research to know the value of what you are buying or selling.
4. Other potential land taxes.
5. Property is not liquid meaning that you may not be able to sell it quickly if you require money urgently. Settlement of a sale often takes six weeks (at least in New South Wales).

What is the real return on property?
Not many people actually go to the trouble of working out the true yield on their property investment. To do this they need to add in all the extra costs of maintenance, fees, rates and possibly months where there are no tenants paying you an income.

When you sell any asset, the net gain is:
Original investment + purchase cost + additional cost of maintenance (in this case, rates, taxes etc.) – income received + final sales cost (stamp duty, legals etc.).

Despite all this, property definitely has more growth than cash and fixed interest, but not as much as shares.

Shares are my preferred asset class for growth and a growing income return. My strategy to help you fund your private school fees is based on this asset class.