Golden rules for investors in 2023

An industry expert has advised investors of her golden rules they must follow in 2023.

This year will be 12 months of opportunity for savvy property buyers, seasoned investors and clever newcomers, according to Anna Porter, the principal of Suburbanite, who is also a market commentator and valuer.

Her rules include budgeting, buffering, diversifying and research.

“In 2023, you’ll want to budget ahead as this is certainly not the year to fall victim to stretching yourself thin,” she says.

“The changes to the interest rate environment have already made a dent in the budgets of households all over Australia. Set your budget from the start and ensure you’re leaving enough room to be able to counter any further rate rises or unexpected expenses.”

She also warns all investors that they need a buffer.

“When buying in unknown times, you’ll want a buffer especially as homeowners stretched for cash opt to sell their homes quickly,” she says.

As principal of Australia’s only national buyers agent firm, Ms Porter emphasises 2023 is the perfect opportunity to buy outside of your own backyard.

Opportunity

“Diversification is key in 2023 and we know already there’s plenty of opportunity for investors if they know what to look for,” she says.

“This is the year to look outside of your backyard – you can still get a great investment property in South Australia with less than $500,000.”

The window of opportunity is in the first quarter of 2023 while the market is already softer, and before borrowing power reduces further.

“Investors with under $500,000 should look to Perth and Adelaide, especially as their borrowing power diminishes,” Ms Porter says.

“With this kind of investment, you can typically get an older house, under half an hour of the city or a townhouse or villa in closer proximity to the CBD.”

No matter where you might be investing in Australia, Ms Porter advises you need to know the numbers.

“It’s critical to do your homework especially on the vacancy rates,” she says.

“Speak to valuers and local agents to make sure the numbers stack up and cross reference this with your own research.”

A quality real estate agent is engaged in their local market every day and knows not only what reasonable market values are, but how many interested buyers are in the market and who they are.

Long-term strategy

Property investment is also a long-term strategy and the tax benefits provided by real estate deliver unmatched financial help. Combine it with the long-term growth of real estate values, despite short-term dips, and real estate owners are winners.

Investors get a 50 per cent discount on capital gains tax (CGT) if they hold an asset for more than a year.

CGT is not a specific tax rate but involves adding the profit on an asset sale to a person’s taxable income for a financial year.

Investors can also claim a tax deduction when their holding expenses exceed the income generated (usually rent), and property has plenty of expenses including interest, council rates, insurance and property manager fees. A negatively-geared investor still loses money, but eventually income should rise above the expenses – which is called positive gearing and should be the goal.

There is another big tax deduction for real estate investors, and it costs them nothing from their own pocket.

Research

Depreciation of items including curtains, carpets and appliances can be claimed when the item or property is new, while investors can also claim capital works deductions, which are essentially the cost of the bricks and mortar.

The write-off rate for capital works deductions is typically 2.5 per cent a year. For a $300,000 building, this equates to $7500 annually without stripping a dollar from investors’ hip pockets.

In property, it often comes down to crunching the numbers and for people looking to get ahead, doing research is a key step. One of the best ways to keep on top of the game is with REA Group’s data and insights tool, PropTrack, which has regular market reports and commentary to help advance the understanding of important trends and changes, and be aware of conditions, policies and developments affecting property markets around the country.