Business woman stepping up on stairs to gain her success in 2015 new year

Return on Investment is the best measurement to determine whether your investment is good or bad. The logic is very simple: the higher the returns relative to the money you put out, the better your investment.

In Australia, property is arguably the most popular investment vehicle, so it’s not surprising why many have thought about investing in property. The challenge for most is that home values in the country are among the most expensive in the world. This means that an investor will most likely need to raise quite a huge capital in order to get started.

Therefore, maximising property investing returns is very important if you want to offset your debt and earn profits as soon as possible.

Improving Rental Returns For Better Return On Property Investment

The culture for most investors in the country is to gear investment properties negatively. This means that the investor charges a rental income lower than the cost of their investment loan. The monthly losses can be used for tax breaks. And in an ideal scenario, those tax breaks accumulated through the years will offset the monthly losses when the investor sells the property at its appreciated value (say double its original price after a decade or so).

However, life is usually more complicated than the ideal scenario; and in a practical sense, losing money each month can be very taxing on four personal finances. At the end of the day, are you truly willing to lose an average of $50 – $100 per week for an annual tax break?

So rather than gear your property negatively, it’s more practical to charge rental rates that can cover your loan and, ideally, yield you profit at the same time. Ensuring passive income is the start of maximising return on property investments.

Granted, rental rates will vary depending on where your property is situated, so location is very important. Typically, demand is strong in the inner suburbs because people like to live in areas that are close to work. Moreover, blue chip suburbs usually have a variety of shops, restaurants, clubs, parks and other recreational places, which make these locations all the more appealing. The higher the demand for these areas, the better the rental rates.

Structure Your Finances Wisely

Aside from improving rental income, another factor to consider in maximising return on property investment is how quickly you can pay-off the debt you’ve incurred when you bought the property. This is something most people overlook since people simply tend to pay off the mortgage as structured by the bank.

However, because banks earn most of their profit from interest, it is beneficial for them to structure their loans where you, the borrower, end up paying the most interest.

If you want to minimise your debt to boost your net profit, it’s important that you pay off the principal on your loan as quickly as possible. This can be done by structuring your finances strategically so that most of your investment’s income goes towards paying off your loan. You’ll be surprised at how quickly you can shave off the years from your mortgage once you focus on paying off the principal.

These are just some practical tips to help you yield better return on property investment. For more investment tips, register for our ‘Prepare Your Wealthy Future’ seminar at www.pwf.com.au/prepare-your-wealthy-future-seminars.