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McCarthy Group made
what seemed to be a
daunting process easy
Katrina and Dennis Ghetto,
McCarthy Group investors since 2005
PRINCIPLESRIN IPLESOFF PROPERTYROPERTY
INVESTINGNVESTING
PRINCIPLESOF PROPERTY
INVESTING
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They did everything for us.
The whole process was made so easy,
we now have three properties
Cynthia and Jari Teivonen,
McCarthy Group property investors since 2009
2
odays property investor is spoilt for
choice. Some people would say they are
bombarded with possibilities. Tere are
thousands of potential properties on
offer, and in many cases these are
advertised boasting assured capital
growth and/or guaranteed rent returns.
But what is the truth? How does aninvestor determine what will work best
for them?
Popular media offers continual
assurances to property investors, and
real estate agents alike that residential
property is a sure-re investment, and
platitudes like its safe as houses and
you cant go wrong with bricks and
mortar abound.
Like any good story, there is an element
of truth to these assertions; however, not
all residential property is necessarily a
Stephen McCarthy CEO, McCarthy Group
www.mccarthygroup.com.au
good investment. Some unwary buyers
can get trapped with a lemon, while
other more aware purchasers can pick
outstanding investments.
Te purpose of this guide is to help the
investor work through the Rubiks Cube
of options and choices, and assist them to
reach intelligent, informed, commonsense
conclusions about which area, and type of
property will bring the rewards they seek.
HOW DOES AN INVESTOR DETERMINE
WHAT WILL WORK BEST FOR THEM?
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In analysing which property areas will
have the best potential for total returns
you need to balance both short, and
long-term factors. otal returns is a
blend of capital growth (which we refer
to as the invisible), and the combined
returns of rental income, and tax benets
(which we measure as the visible).
Naturally, the visible returns are one of
the most important aspects of any
successful property investment. Since it
is rare for capital growth to happen
overnight, an investor will need to be in a
position to cash-ow the property or
THE TWO FUNDAMENTAL
PRINCIPLES: RETURNS & PRICEhold it until such time as it develops a
positive cash ow. Consequently, if the
visible returns are low, the property may
prove too expensive for the investor to
hold long enough to benet from the
capital growth.
In the case of an investor who has not
analysed the numbers on their property,
they may nd themselves having to sell
prematurely, and possibly lose some of
their hard-earned money. Investors may
take heed from a simple builders rule:
measure twice, cut once. Tis advice is
equally sound for property investment!
Most successful investors allow for aminimum timeframe of 5 to 7 years to
allow for a property to mature.
www.mccarthygroup.com.au
We didn't want our futureleft in the hands
of the mob in Canberra
Leanne & David Wakeling,
McCarthy Group property investors since 2009
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At the time o writing, it is unusual to
nd a property that offers both a high
rental return, and high capital growth.
Most high priced upper market suburbs
are historically top capital growthperormers; however, rental returns
rom these areas are usually abysmal. In
contrast, country properties or suburbs
on the outskirts o a city historically
have higher rentals but lower growth
rates.
I you agree that the best property is
one that is in the most demand, then the
largest, most consistent demand exists in
the market sector that appeals to what
demographers call Middle Income
Australia. ypically, this sector is
dened as mum, dad, two kids and their
pets. What we will call DIK (Double
income two kids).Trough sheer weight o numbers this
sector creates both rental demand, and
capital growth or their property o
preerence. Te next component to
consider when juggling the Rubiks Cube
o successul investing is selecting the
right price range.
THE RENT ONE THIRD RULE
Te rental market is mainly driven by
affordability. Te rule o thumb here is
that the annual rental asked should not
exceed one-third o this groups income.
It is the same guideline that banks use
when assessing loan applications; they
allow one-third o income or taxes,
one-third or living expenses, and one-
third or mortgage or rental payments.
USE YOUR HEAD NOT YOUR HEART
An investor should resist any temptationto buy in their own backyard. Tis is a
misguided notion or a number o
reasons. Most notably being that it is an
emotional decision that masquerades as
a rational one.
People ofen eel that they know
their own area, and having an
investment property close by means that
they can drive by to keep a eye on it.
When investors buy in their own
neighbourhood, it is usually symptomatic
o being stuck in their comort zone.
It is a decision not usually based on
good investing sense, and may blind the
investor to other potentially outstandingareas. Investing outside your own
backyard may not be as daunting as you
rst might think.
With cheap air travel, instant messaging
services and email, the tyranny o
distance is no longer a concern. Tere is
also no need or you to manage your
own property.
www.mccarthygroup.com.au
Buying Tip
Try to strike the balancebetween future potential
capital growth (the invisible)and todays rental/tax returns(the visible)
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Professional property managers offer
full comprehensive services for absentee
landlords. Simply keep it insured
against any calamity, and then manage
your manager!
Keep in mind that just because you
can drive by your investment house,doesnt mean it will go up in value any
faster. Nor does it mean you can pop in
and check up on your tenants at any
time thats called trespassing! Only
invest where the numbers work, and
keep emotions out of the decision!
WHAT DITK WANT?Te next component to consider is the
type of propertyfor our target market.
We are seeking areas in demand from
our target marketDIKS.
Te DIK sector has a denite
preference for detached housing. Tis
market also has a strong preference for a
house with its own backyard. Tey want
their kids to run around, and want to
provide the same safe and secure
environment that most Australian adults
enjoyed when they were growing up.
Tere is a nesting instinct that has
parents wanting to provide the same
upbringing for their own children.
When given the choice, most home
hunters in this sector have a further
preference for new or at least modern
homes. ypically, many families seeking
rental accommodation require in themodern home four bedrooms, ensuites, a
home study, lockup car accommodation,
generous storage space, free-owing oor
plans and modern xtures and ttings.
Naturally, investors offering these types
of properties have a strong competitive
advantage over older, more unfashionable,
dated looking properties.
www.mccarthygroup.com.au
Thanks to the teamat McCarthy Group I am
nally free of my mortgage
Barry Mulligan,
McCarthy Group property investor since 2004
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As well as this type of property being
more attractive to the target market,
there are two further advantages a newer
property has over an older property.
Firstly, an older property may require
heavy ongoing maintenance, which can
seriously diminish the rental returns
items such as replacement of hot
water systems, carpets, etc. can be
expensive. In addition the cost of major
repairs or renovations such as a new
roof, kitchen or bathroom are regarded
by the ax Office as capital items and
therefore the cost of these is deductible
only upon the sale of the property. Olderproperties can also be at a disadvantage
from obsolete construction materials (ie
asbestos) or design.
SLEEPER RETURNS
Secondly, there exists the major factor in
the age of the property which is the
sleeper return, namely that newlyconstructed properties qualify for
additional tax incentives for building
write-off and depreciation of xtures
and ttings. Essentially, what this
means is the larger the property the
larger the tax deductions, so a large four
bedroom home would qualify for larger
deductions than say a studio apartment.
Tese two components can mean
thousands of tax dollars being refunded
to the investor, further maximising
their returns.
INFRASTRUCTURE AND JOB GROWTH
In summary, we have covered who ourtarget market is, what they can afford, and
what type of property they are seeking.
Now to look to where we can nd the
largest concentration of this group.
o do this, one only needs to look at
the migration patterns prevalent in
Australia today. People are driven to or
away from areas directly in proportion
to home affordability, so it should be no
surprise to learn that those areas
experiencing a high inux of migrants
are those areas which have the most
affordable housing, along with the
potential for good employment and
better living standards in the new location. Author and demographer Bernard Salt
believes that there are two demographic
factors currently affecting capital growth
infrastructure and job growth. In his
recent publicationAustralia on the
Move,Salt identies Queensland as a
high growth state with families, and
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CATER FOR THEMARKET REQUIREMENTS
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retirees moving to the lifestyle locations
it is famous for. Experts predict over
one million people will move to
Queensland in the next 20 years. It can
be reasonably assumed that the cost ofhousing will increase in key areas as a
result of this large-scale migration.
According to an Australian Bureau
of Statistics report dated June 2011,
ownsvilles population has grown at
a rate of 2.8% over the past ve years.
o put this in perspective the national
population growth rate was less than
1.4% and Queensland as a whole
was 2.3%.
Where population growth takes place,
its important that corresponding
infrastructure improvements also exist.
Currently Queensland, particularly
ownsville, is rich with infrastructuredevelopments. It has been earmarked
as the states second capital, with
expected rises in government
administration and infrastructure.
Tere are currently 75 projects on the
drawing board worth an estimated $4.5billion to support the regions growth.
Among them is the $200 million Ring
Road project announced in the 2012-13
Federal Budget.
McCarthy Groups years of experience
in the property market enables us to pick
the growth areas that will address both
the visible (rental returns) and non-
visible (capital gains) elements of
property investing. Why not contact us
today and get started on the path to a
secure nancial future.
Even though my accountantsaid I couldn't afford
an investment property,they made it happen
Donna Spencer,
McCarthy Group property investor since June 2011
www.mccarthygroup.com.au
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McCarthy Group Pty Limited ACN 086 284 826
02 9687 3601 / 1300 850 318 / F 02 9687 3610
Building 2, Suite 2.01, 35 Waterloo Rd Macquarie Park NSW 2113
PO Box 42 North Ryde BC NSW 1670
E [email protected] / www.mccarthygroup.com.au
For additional copies of this consumers guide, or another in our series, please contact us at the address below.
Tis 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, nancial situation or individual needs of the reader. Neither McCarthy Group Pty Ltd nor its affiliates
intend by this guide to provide any nancial product advice, and information in the guide cannot be relied upon as such. All readers should
consider obtaining independent advice before making any nancial decision concerning property or any other investment product.
PLEASE CALL 1300 850 318
VISIT OUR WEBSITE: MCCARTHYGROUP.COM.AU