Specific risks facing property investors at the moment and 4 tactics to mitigate them

Significantly tighter credit, the potential abolition of negative gearing and increase in the capital gains tax rate, falling property prices, new apartment supply… these are some of the head winds facing property investors today.Given these challenges should you give up and not invest in property? I don’t think so. In fact, good investment opportunities tend to reveal themselves during times where there is negative sentiment and/or uncertainly.I would like to share with you four tactics that you can employ to mitigate many of the above risks and ultimately enjoy quality long-term returns.Tactic 1: Invest with owner-occupiersIt is prudent to invest in a location and type of property that suits owner-occupiers equally as well (if not better) than investors. By doing so you increase your pool of prospective purchasers which will help drive property price appreciation. Also, if future changes in tax legislation negatively impact investor demand, the owner-occupier market will still underpin demand for your investment property.The chart below from CoreLogic (from 2016) sets out the percentage of units and houses owned by investors. Most inner-city high-rise residential towers are often marketed to investors and due to the sheer quantity of these apartment towers, they are probably responsible for skewing the percentages somewhat. However, this sector is a good example of one that you must avoid like the plague – for lots of reasons including that fact that this it is dominated by investors.Chart: https://www.prosolution.com.au/wp-content/uploads/2018/09/Corelogic-units-v-houses.pngTactic 2: Invest before 2020The Shorten government has stated that its ban on negative gearing and higher capital gains tax rate will only apply to properties that are purchased after a yet to be determined date. That is, these new rules will not apply retrospectively to property you already own. Assuming the election occurs in May 2019, I expect that it will take at least one year to draft and pass legislation. As such, perhaps the earliest practical start date for these new tax rules would be 1 July 2020. Therefore, if you purchase an investment property before this date you will still enjoy the current negative gearing benefits and 50% capital gains tax discount.Tactic 3: Level up on qualityAs discussed in my recent article in The Australian newspaper, if the ALP’s tax policies are implemented as proposed, they will reduce the after-tax long-term return on property by 26% from 12.6% p.a. to 9.3% p.a.The best way to mitigate the negative impact of higher taxes is to generate higher returns. And you cannot expect above-average returns from below average quality assets. Therefore, you absolutely must invest in the highest quality assets that you can afford.In my book, Investopoly, I talk about how notionally there are sub-grades with the class of investment-grade properties and these will have an impact on the potential investment returns that you can enjoy. I have provided and excerpt below (click to enlarge).Book: https://www.prosolution.com.au/wp-content/uploads/2018/09/investopoly-grades.pngTactic 4: future-proof your loan structurMy new book is available for pre-order now: Pre-ordering the book will help me get it into bookstores. So please do me a favour - please consider pre-ordering now - links and pre-order bonus are available here: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at [email protected]. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.