Chat to a Sydney-sider on the weekend and you’ll encounter a Venn diagram of three hot topics:
- Lock out laws
- The wait for your Uber driver
- The housing market
In addition to these, I’d be visibly removing my jaw from the pavement if I didn’t get at least some off-hand comment about negative gearing or the Sydney property bubble. Whether it’s renting, buying or selling, Sydney-siders sure do love the property market game.
You know the value of an investment property, and you also know that there are a lot of myths around renting out your property, some of which we dispelled.
But do you have what it takes to make your property a profitable asset?
Just like we now expect transport, food and potential dates on demand, we also expect to see an instant return on our efforts with our properties. But renting out property is not as easy as tapping and waiting.
Are you thinking ‘it’s time to rent my property’?
Read this before you list your property for rent online.
Why renting out your property does not equal dollar signs (right away)
When deciding whether an investment property will help you meet your financial goals, you need to understand the difference between these three terms:
Capital gains vs capital growth vs cash flow
If you still own your property, you’ll benefit from capital appreciation/capital value growth, which is where the value of your property goes up. This happens naturally with inflation, but can also go up should you renovate, not to mention keeping your home in tip-top condition.
If you sell your property and make a profit, that’s a capital gain. If it’s not your Principal Place of Residence you might have to pay tax on the gain.
And as for cash flow, that’s that extra finance left over after all of the ongoing costs of owning a home are deducted from your rental income.
Cash flow = rental income – property expenses – loan repayments + tax benefits.
Be a goal digger
If you’re looking to expand or start building your investment portfolio, you need to think about your financial goals. How much do you want to earn within 5 years? How about 10 years? Or are you more interested in equity and building an investment portfolio?
If you answered yes to the last question, you’ll need to think about your cash flow AND your capital gains, as you’ll consider using the equity of one property as a deposit for another.
Just want to hang on to one property to pass on to the kids? Cash flow is going to be more important for you in the near future. That being said, capital gains is still a priority as it will pull rents up over the long term.
Your best bet: find the happy medium
Your best bet is to focus on both cash flow and capital gains. Although you might pass down the property to future generations, you hardly want to leave them with a poorly maintained property. This will be more of a burden for them in the long run, and hardly worth your investment.
Renting your home is not an exact science
There are many different strategies for making an investment property profitable.
Interest rate changes, an increasing demand for more Sydney properties, emotional decision making and changing financial circumstances can all conspire to change your outcome. Don’t assume that you know it all, or that you can do it on your own. If you’re looking to pay off your mortgage faster, refinancing might be a better option that renting out your house. Talk to an expert about your options, and keep your eye on the Sydney property market before you head to auction.