A Strategic Property Investment Success Story – August 2024
Overview
This case study highlights how a disciplined, strategic approach to property investment can yield extraordinary results. By turning a $25k investment into $140k in just two years, this investor’s journey showcases the power of careful planning, informed decision-making, and ongoing collaboration with a professional property investment advisor.
As the property reached its first significant milestone—being ready for its first tenant—the focus shifted from initial development and cost management to actively managing the property as a key asset in the investor’s portfolio. This critical review process involved comparing actual returns against forecasts, reassessing all investment elements, and ensuring alignment with the investor’s evolving financial goals.
Key to this success was implementing best practices for record-keeping to maintain ATO compliance and maximise potential claims. Tools like the ASPIRE Portfolio Manager, setting up a dedicated bank account for rental income and expenses, and preparing detailed cost-base records all played vital roles in this achievement.
The investor exceeded initial expectations through a proactive and disciplined approach and laid a strong foundation for continued success. With a follow-up review already scheduled for 12 months, the strategy is to ensure the investment remains on track and continues delivering robust returns. This ongoing partnership with a professional advisory team gives the investor confidence and peace of mind, knowing that every aspect of their property portfolio is being expertly managed to align with their broader financial objectives.
Investment Performance
In May 2022, the investor purchased a property in Perth for $506,000. At the time of purchase, the initial forecast projected that the property would reach a value of $614,000 by 2027. However, the property has already increased to an estimated $640,000+ (conservative market valuation), four years ahead of the original forecast due to favourable market conditions and strategic choices during the investment analysis, due diligence and plan implemented in 2022. This represents a capital growth rate of approximately 12% per annum, surpassing the initial projection of 4% per annum.
In addition to capital appreciation, the property’s rental income exceeded expectations. Initially forecasted at $500 per week, the property is currently generating $580 per week, reflecting a 16% increase over the projected rental income. This higher-than-expected rental yield has further enhanced the overall return on investment.
Financial Outcomes
The total investment cost, including interest and purchase costs, amounted to approximately $25,000. Despite this modest outlay, the equity in the property has grown by $130,000 to $140,000 over the two years. This impressive growth illustrates the power of holding a well-chosen asset over time and the benefits of a steady and patient investment strategy.
The loan balance is currently $400,000 (a cash deposit was initially used to reduce the debt of approximately $120,000). At the same time, the property value has appreciated to $640,000, leaving the investor in a strong equity position.
Tax Implications and Financial Benefits
This investment also provides significant tax benefits, primarily due to the property’s depreciation schedule for new property, which offers an annual tax deduction starting at $14,500. This deduction and other expenses result in total deductions of approximately $48,000 against the rental income of $30,000. Consequently, the investor enjoys a net tax reduction of around $18,000 on their PAYG income, effectively reducing taxable income to receive a tax refund and enhancing investment returns.
Moreover, after factoring in tax benefits, the net annual holding cost of the property is only about $2,500, or $49 per week, making this a highly cost-effective investment.
Strategic Loan Repayment
One of the key strategies discussed during the review was the potential for significant interest savings through accelerated loan repayment. By switching to fortnightly payments, the investor could save approximately $113,000 in interest and reduce the loan term by 5.8 years. Furthermore, an additional $100 per fortnight could save an estimated $183,000 in interest, shortening the loan term by ten years.
These scenarios highlight the importance of choosing the right investment and effectively managing the associated debt to maximise returns and build wealth over time.
Next Steps
As the investor moves forward, the following steps include:
- Switching to Fortnightly Loan Repayments: Capitalise on potential interest savings and accelerate loan repayment.
- Finalising Tax Documentation: Gathering all necessary financial documents from the construction period to calculate the cost base accurately and maximise tax deductions.
- Monitoring and Reassessing: Continuously monitoring the property’s performance and reassessing the investment strategy in 12 months to ensure alignment with long-term financial goals.
- Exploring Future Investments: As the equity position strengthens and market conditions remain favourable, the investor will consider additional property investments to build further and diversify their portfolio.
Conclusion
This property investment journey is a powerful testament to the impact of time in the market, a carefully considered long-term strategy, and the essential role of working with a professional property investment advisor. While property investment is not a quick fix, the significant above-forecasted returns achieved through patience, consistency, and expert guidance underscore the value of staying the course.
By adhering to a strategic plan, making informed decisions, and leveraging the expertise of a professional advisor, the investors not only outperformed initial projections but also positioned themselves for continued success. This journey exemplifies the core principles of successful property investment—time, strategy, careful planning, and the importance of professional support. It’s not about doing it yourself; it’s about doing it right with the guidance of experts who can help you navigate the complexities of property investment and maximise your returns.