Property Investment for Beginners - McCarthy Group Property Investment for Beginners - McCarthy Group

Many people are attracted to investment property as a strategy to achieve financial independence, but don’t know where to start. This Property Investor’s Guide is purpose-written for novice investors, and is based on proven strategies that work.

Just as you use a map or guidebook when planning a journey, you can follow these investment strategies to grow your wealth, tracing the footsteps of investors who have learnt them through experience. It will also go a long way to ensuring that you avoid making mistakes through a lack of knowledge and avoid having to learn the hard way.

  • 1. Plan First. Invest Second.

    Naturally, the best investments are well planned. Abraham Lincoln once said, “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” Before you do anything, it’s wise to develop a sound plan for your investment that includes:

    • Your current financial position
    • Where you are likely to end up in retirement without an investment
    • How much income you need to be comfortable in retirement
    • How to reduce the burden of tax and mortgage payments
    • How much you can borrow for investment
    • A detailed property investment proposal
    • A cash flow forecast and future income projections.

    Once you have a clear picture of your current position and what your goals are, you are ready to start building an investment property portfolio. To assist you in this process, McCarthy Group has developed a Lifestyle Planning Workbook. Please call McCarthy Group for a free consultation where we will work with you to identify your current financial position and your future goals.

  • 2. Ensure affordability

    McCarthy Group adopts a “buy and hold” investment strategy that prioritises growth over income, also referred to as “set and forget”.Negative gearing can make holding an investment property much more affordable than it otherwise would be.

    Negative gearing describes this investment strategy where the income from the rent is lower than the overall costs i.e. the interest on the mortgage, maintenance, property management fees etc. You need to ensure you have the cash flow to manage the monthly shortfall and have a buffer for any unexpected costs.

    McCarthy Group’s planning process is conservative and designed around quality homes that are affordable to investors and appealing to renters. We ensure your budget has provisions for unexpected expenses, and we structure the finance to ensure the cash flow required is affordable and sustainable.

  • 3. Choose the right type of home

    Your property needs to be attractive and affordable to the mainstream rental market. Families make up the mainstay of the Australian population. Providing affordable housing to families gives us a wide scope of potential tenants. A new suburban home in a master-planned estate appeals to families and attracts strong demand.

    So while it might be tempting (and self-indulgent) to build a ‘McMansion’ as your investment property, remember that the more expensive the house, the more limited the demand. The more limited the demand, the lower the rent as a percentage of the value of the property. This increases the potential risk in terms of rental vacancy.

    McCarthy Group doesn’t recommend ‘exotic’ investments such as time-share units, luxury homes or holiday houses. Our approach is based on well-designed family homes that are affordable to the mainstream rental market.

  • 4.Use your head,not your heart

    When buying an investment property we can all take a lesson from the world’s most successful investor, Warren Buffett, who says, “You need to be objective, logical and well informed”. Your investment property is a business and should be researched and planned as a commercial venture. While many people are subjective when they buy their family home, you need to be very objective when it comes to investment property. Don’t make the mistake of letting emotions cloud your judgment.

    Some people make the mistake of buying their investment property in the suburb where they live. They feel they know the area and can keep an eye on the property and the tenants. This is generally not a good idea as the property may not be in a high-growth area, may lack appeal for tenants, or may be in too high a price bracket to ensure strong demand.

  • 5.Invest in growth locations

    Investing in areas that are primed for strong growth enables you to benefit from capital gains and increasing rentals right from the start. As we’ve said you need to invest with your head and not your heart, and ensure that the location will benefit from strong economic activity and population growth in the future.

    The Australian property market is not uniform, and there are many factors driving state and regional growth. This results in migration as people move to areas offering new jobs or for lifestyle reasons.

    McCarthy Group has enabled hundreds of investors to achieve excellent returns through investing in the right markets at an early stage of their growth. Many clients describe their investment decisions as “life-changing” because they have become more financially independent as a result.

  • McCarthy Group has a 15-year track record of picking the right growth areas in advance, including:

  • The investment property clock

    The key to successful property investment is The Property Clock, which shows how markets move through various phases in a cycle that repeats itself over time. Investing at the bottom of the property cycle sets you up to enjoy capital gains and good rentals in the early years of investment.

    These recurring cycles are the basis for the rule of thumb that has seen Australian property prices double roughly every 8 to 10 years. Whilst there is no guarantee this will continue in the future, knowing where markets are in the cycle gives you a head-start and means you can get in on the ground floor before the area takes off.

  • 6. Broad economic base

    To be a successful property investor you need constant tenancy and regular increases in rentals. For rentals to increase there must be demand, which means people need to be attracted to the area.

    People usually move for better job prospects or lifestyle reasons, or because rentals or house prices where they are living have become more than they can afford. The broader the economic base the greater the spread of activity, which means more jobs, more stability and higher demand for housing.

    If you invest in an area that relies on one industry, such as mining or fishing, and that industry goes through difficult times, then jobs and incomes suffer. People leave the area and demand decreases. However, if you invest in an area that offers a broad spread of industries and business activities, the economic base will be robust and support housing demand and rental growth.

  • 7. Lifestyle Appeal

    Despite our country’s enormous size, 90% of Australians live within 80kms of the sea. If everyone could do so, they would be closer still! As a rule of thumb, a property within 10km of the water is considered prime. Lifestyle rules, and why not in a country that is blessed with our climate and so many beautiful beaches and rivers? The appeal of living near to the sea increases the population density in those areas, and increases the demand for rental properties.

    McCarthy Group refers to this lifestyle reality as ‘just add water’. Water is essential for growth in nature, and the principle extends to investment property as well. So in a lifestyle location where the majority of Australians want to be, which means as close to the water as possible!

  • 8. Secure title

    In the long run the highest returns come from compound growth and capital gains rather than property rentals. It seems hard to understand that in a country of our size, land for development remains expensive and in short supply. It looks set to remain that way, which means that its value will continue to increase steadily.

    Factors driving growth in land value include:

    • A shortage of land in sought-after areas
    • Strong population growth
    • Changes in social living trends
    • Increasing demand amidst limited supply
    • “Sea change” trends.

    There are two fundamental ways to invest in property in Australia. The first is via a managed fund, e.g. a superannuation fund that typically invests in commercial office and industrial properties. The second way is to invest directly into the property where the title of the property is in your name. Having the property in your own name means that you do not have to share the capital growth or income with anybody else and you can buy and sell whenever you choose.

    A major benefit that comes from investing directly is that it allows you to leverage your money and multiply your returns.

  • 9.Invest in new property

    If you had a choice, would you prefer to live in a brand new home, or one that is sagging around the rafters
    and needs restoring on every front? The answer’s the same for tenants – they would choose new every time!

    also a fact that tenants take extra care when they are renting a new home. Tenants like a new home and try to keep it that way.

    It’s also very obvious when they don’t. New homes mean clean, fresh and modern. Everything works, with minimal
    repairs, maintenance or hassle for the tenant or owner caused by things going wrong.

    New homes are also
    attractive from an investment point of view because they entitle you to a depreciation allowance of 2.5%
    per annum over 40 years. This means you can recover the full cost of the new home over this period even
    though the property has grown in value! That’s a real win, and a smart move compared to investing in
    older homes that offers less in terms of depreciation allowances.

    Finally, a newly constructed home has builders’ guarantees. Being brand new means that everything is
    new and working, and should anything go wrong, it is the builder’s responsibility to repair it. This means
    you avoid repair costs, which adds to the return on your investment.

    McCarthy Group contracts master builders to construct investment properties of the highest quality.
    The homes are purpose-designed for the rental market and have industry-leading guarantees for
    long-term savings and peace of mind.

  • 10.Limited development opportunity

    Despite the vast tracts of land in Australia, prime property for residential development is in very short supply. There are many reasons for this, with one key issue being the demand for properties that meet lifestyle and economic needs. This strong demand and relatively short supply leads to increased property prices.

    A good strategy is to invest in residential developments where the boundaries to future growth are finite and with limits on the number of plots available for development. This provides a measure of exclusivity, limited availability and strong demand, with overall returns benefiting as a result.

  • 11.Make it attractive for tenants

    There is a simple term for this; the “Wow” factor. This is the difference between a property that attracts lots of interest, but gets passed over, and one that tenants literally compete for as the rental home they want.

    As a start it needs to be in the right city and suburb. Then it’s the added value that makes the
    difference, which needs to be planned in from the start. The shape of the block, its aspect, ease of access, proximity to transport, clean, modern architecture, attractive landscaping and flexibility within the property all combine to determine the “Wow” factor. So too does the quality of the home and its inclusions, the overall design, storage, garaging, and thoughtful extras designed to appeal to tenants.

    In summary, tenant-appeal is designed in right from the start. McCarthy Group has refined this over the past 15 years and tenant appeal is ensured through the design and the rigorous standards applied to property selection, layout, construction and finishes.

  • 12.Best practice structures secure success

    Many investors go wrong right at the start and don’t use the right structures for property ownership. These mistakes are hard to fix later and they can reduce your overall returns as a result.

    To optimise your returns, and to ensure maximum protection with the minimum taxation, you need to ensure you use the best possible structures to secure your long-term success.

    Our tax advisers are specialists in investment property and will assist you to set up the appropriate structure to house your investment right at the start.

  • 13. Use leverage to turbocharge your returns

    If capital gains are your primary goal, you only need to provide the minimum level of equity to secure the investment, and not more. You are after ownership and control of the asset, and your interest payments will be tax-deductible.

    Smart investors don’t aim to pay off their investment properties in the same way as their family home. They pay off the minimum amount possible and hold the property for a long time.

    They use the leverage of borrowed money to buy and control a valuable asset that can generate compounding capital gains for them. And instead of paying down the mortgage, they can use the surplus cash to fund another investment property.

    This means:

    • Using the bank’s money (or OPM – “Other
      People’s Money”)
    • Limiting your personal capital invested
    • Increasing your return on equity
    • Building wealth in the shortest possible time.

    The principle of leverage is widely used in the structuring of finance and mortgages for investment properties. Debt becomes your friend, and the greater the level of borrowings relative to your own cash outlay, the greater the returns on your property investment.

  • 14. Use different banks

    There is a technical word for this – ‘Cross Collateralisation’. We prefer to simply say, ‘Use different banks’. The principle at work is that if Bank A holds the mortgage on your family home, then it makes sense to approach Bank B to provide the financing for your new investment property.

    This lets you spread the risk, and avoids one bank being in control of both assets. This principle places you in control of your assets and the cash flows needed to support them, rather than one bank having control over all your properties.

    The same principle can be used for future investments; Bank C funds the 3rd property, Bank D the 4th, and so on, leaving you in control of your portfolio rather than being tied to a single bank and its policies.

    Our specialists in McCarthy Group Financial will help you set up your mortgage financing so that you enjoy all of the benefits of borrowing and leverage, and minimise the risk.

    They use the leverage of borrowed money to buy and control a valuable asset that can generate compounding capital gains for them. And instead of paying down the mortgage, they can use the surplus cash to fund another investment property.

  • 15. Leave management to the professionals

    Investment property management is a specialised field best left to the experts. Professional property managers know their market and can recommend the rental needed to secure a tenant. They also market the property for you, shortlist prospective applicants based on the applications and research, show them through the property, and make a tenant recommendation for you.

    Once you have tenants, your property manager will ensure regular inspections, attend to any maintenance or repairs that need doing, and collect the rentals for you. They then transfer the rent along with monthly statements and itemised income and expense summaries. They also act quickly to protect your interests if your tenant doesn’t pay for any reason, and they have the experience and insights to manage things for you if anything goes wrong.

    Generally agents charge between 7% and 10% of the gross rental. In our experience you get what you pay for, and this cost is fully tax deductible.

    Koala Blue Real Estate is our property management company that manages the investment properties of our clients in markets around the country.

  • Why McCarthy Group?

    Only 14% of Australian taxpayers own an investment property, despite the tremendous advantages they offer people in terms of wealth creation. There are many reasons for this. It is a complex industry, high return opportunities are hard to find, first-time investors feel at risk, and the paperwork and processes are difficult to manage.

    As much as anything, people find it all too confusing and time consuming and are scared of making a mistake. And they don’t know where to turn for reliable and trustworthy advice.

    That’s where McCarthy Group fits in. While you can learn about these investment property fundamental rules in specialist publications and at conferences, McCarthy Group has a 15-year track record of putting them to work for clients in a systematic and proven way across many markets in Australia.

    • 1

      Growth locations with a broad economic base

    • 2

      Finite (or contained) development opportunities

    • 3

      Affordability to the client and the tenant

    • 4

      Attractiveness to tenants

    • 5

      Design appeal and tenant-friendly extras

    • 6

      Outstanding quality with industry-leading guarantees

    • 7

      Ownership of the land

    • 8

      Buying new

    The final piece is the implementation of current best practice in terms of:

    Best practice structures

    • 1

      Ownership structures (e.g. a family trust)

    • 2

      Tax deductions

    • 3

      Leveraging your investment

    • 4

      The use of different banks (avoiding cross-collateralisation), and

    • 5

      Professional property management

  • Getting it right

    Our process starts with helping you get to grips with your current financial situation, set goals for the future, and develop concrete plans that will get you there. We then provide investment opportunities that cover all the fundamental points covered in this investor report.

    We are proven experts in investment property, and over the past 15 years we have helped over a thousand Australian families invest in prime markets. Our company could be described as a “one-stop investment property shop”, as we do it all for you and support you every step of the way.

    We have all the technical skills to ensure your success, and back it all up with a level of professionalism and customer service that is a benchmark in the industry.

    If that sounds too good to be true, then visit our website and read what our customers have to say in their testimonials at

    Or visit our Instagram page, where some investors some up how they feel about our their experience.

    If you would like to learn more about the power of investment property in building wealth for your future, please contact us for a free consultation with no obligations. It could be the most valuable call you’ll ever make.

  • The McCarthy Group Team
    James and Maura Allington,
    investors since 2009

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Disclaimer This guide is intended to provide general information of an educational nature only. Any information contained in this guide does not have regard to the investment objectives, financial situation or individual needs of the reader. Neither McCarthy Group Pty Ltd nor its affiliates intend by this guide to provide any financial product advice, and information in the guide cannot be relied upon as such. All readers should consider obtaining independent advice before making any financial decision concerning property or any other investment product.