AU Size isn't everything with real estate
Property Here - Monday, May 06, 2013
THINKING big can be a good strategy in the world of real estate investment, but can you think too big?
Size is an important factor if you want to make money from property, but miscalculations could be financially fatal.
And the lessons of mega-rich property owners can help educate the rest of us.
Last week I spent a couple of days in Perth and had a peek at some of Australia's most expensive real estate.
This included a $57 million mansion on the Swan River, which apparently has a couple of swimming pools, bowling alley and 40-seat cinema.
Gina Rinehart, iron ore heiress and Australia's richest person, also owns a riverfront property on the Swan but compared with the $57 million place mentioned above, it's relatively modest. A nearby riverfront home owned by business baron Kerry Stokes is similarly unassuming amid the glittering display of WA wealth.
Lesson learned: True wealth is not always measured by how flashy your home is.
Another important lesson sits in the ritzy suburb of Peppermint Grove, where a half-built $70 million Indian-inspired palace for fallen fertiliser tycoon Pankaj Oswal stands abandoned after he and his family left the country following the collapse of a project. Now the home, which sits on a 6601 sq m block and is described by neighbours as an eyesore, may be bulldozed.
Lesson learned: Don't bite off more than you can chew in property, investment or business.
One lesson where rich property owners do get it right by thinking big is when they are making the most of Australia's tax laws.
Capital gains on the family home are tax-free, which means a $400,000 home that doubles in value in a decade delivers a $400,000 tax-free gain, but a $4 million home that doubles in value delivers a $4 million tax-free gain. A nice earner, if you can afford it.
The most important lesson is to understand the size of your debt and repayments. What may seem affordable now, with interest rates near record lows, can balloon to something unmanageable when rates inevitably rise.
Think big by all means, but always remember that size isn't everything.
Read more: http://www.news.com.au/realestate/experts/size-isnt-everything-with-real-estate/story-fneofxxf-1226635868828#ixzz2SVXWSohm