Investing

 

Investing in property has always been seen as a safe and effective way to build wealth. Many people who choose property investment as a way to build their wealth feel safer investing in property as it is an investment they can see and touch. Many would refer to this as a tangible investment rather than a non tangible asset investment like shares or managed funds.

The tangible benefits of property investment coupled with the rental income and possible tax concessions make it easy to see why an investment in property can be an attractive choice.

Property Investing Tips & Tricks

Is it easier if I already own a property?

If you already own your own home, you will be familiar with the property purchasing process; it is not that difficult to take your next steps in purchasing a property for investment.
Utilizing the equity in your home to finance an investment (property, shares etc) is a great way of putting your property to work for you. This will often be a more cost-effective option than taking out a personal loan.

Negative gearing*

Negative Gearing is a term used to describe the return or income you receive from your rental property less than the expenses of owning that property (interest on your loan, council rates etc) – the property is said to be negatively geared.

In some instances the Australian Taxation Office will allow this ‘loss’ incurred on the investment to be offset against other income, as a tax deduction.
Example:

Rent received 9,000
Expenses incurred 12,000
Loss which may be claimed as a tax deduction 3,000

*Consult with your tax adviser to see how negative gearing can be applied to your personal situation.

Other Deductions I can receive from Investing in Property

The deductions received from investing in property can include claiming the interest bill charged on the loan as an expense. Further, a person who wants to make deductions can claim repairs, insurance costs, real estate agent fees, council fees, and water board fees.

A person can also claim fixtures and fittings depreciation expense deductions. The fixtures and fittings on a property include carpets, taps, blinds, kitchen and vanities. As a general rule, most of the mentioned items can be claimed as a depreciable loss when investing in property at 15%. These paper depreciation write off expenses will show in a person’s tax return when completing the financial years tax return. It is worth noting though, that the amount of claims which can be made differ if the property is new or old.

What type of loans can I get when investing in property?

In the early 1980’s many lenders charged extra for an investment loan. By late 1990’s most lenders had stopped doing that, and were offering normal priced loans for an investment loan.

Most lenders offer all types of loans available within their product listing for an investment loan. Most financial institutions do not charge any extra for an investment, and all the features are available within the product ranges.

At Mortgage Providers, we tend to recommend the cheapest rate available with an ability to pay extra. In many respects we recommend an offset loan as it is helpful with tax deductions. Our consultants have strong knowledge of the benefits of an offset loan for investment loans.

Can I pay off my investment loan quickly?

There are usually no obstacles to paying off an investment loan sooner. On the contrary, if you can afford to pay off your loan sooner and the loan features permit you, then go ahead and do it.

Most investment advisers will encourage you to pay off your home loan before your investment loan as your home loan does not have any tax deductions. After your home loans are paid off, and you could afford it, then it is worth using your surplus money and paying off/down your investment debts or buy another property if you could afford it. The less debt on your property, the more of that property you own.

Seek independent financial advice

The old adage that if an investment opportunity sounds too good to be true, it usually is – holds true. Always be sure to research your investment decision thoroughly. Be sure to seek independent property and financial advice.

If you are turning to property investment for capital growth, tax benefits and as a retirement strategy, it is very important to learn as much as you can, especially if it is an area you’re not completely familiar with.

At Mortgage Providers, we have found that 62% of our clients are investors buying their second to tenth home. Hence we have a good understanding of investment property techniques as well as the right loan products for these people. We know how to explain negative gearing, its benefits as well as knowing where the cheapest and most flexible loans are for an investor.