Tag Archives: buy investment property

Buying an Investment Property?

Invest In a Unit or House?

 

Why are you exploring the possibilities of buying investment property? In Australia, the reality is the more you invest, the less tax you pay. Ultimately…the less tax you pay, it means you’ve got more money in your pocket to help drive your debt down.

Are you with me? Do you understand what is going on? 95% of what I am going to show you, you already know. The key distinctions about what makes buying investment properties is how you can put the property investments to work in your own life.

So if we apply this to your life, why would you limit yourself to one investment property? When you buy property/real estate today you are buying at a discount in relation to the future as this increase is called capital growth.

These are core structures for financing all of your property investments and wealth creation. In principle, it really doesn’t matter if you buy a house, renovated and sold it, if your investment money comes from business or wherever…

Buying investment property means you get your money working harder for you. The more you positively leverage you investments, the less tax you pay. Less tax…more you can drive your debt down, and more you can drive your debt down the more you can invest!

Why use equity to buy investment property? If you are already a home owner you may not need to provide a deposit to fund the purchase of an investment property because equity is the difference between value of your home vs how much you owe or borrowed from the bank against it

Want to understand what equity is and find out how to access equity in your own home and use it to purchase an investment property? Simpy push the play button and watch this video.

There are several ways to make the most of your existing equity buying an investment property without actually tapping into your savings. Unlocking the equity in your home can be an effective way to assist in purchasing a rental property to help build your wealth.

Buying an investment property…why invest in units is a common question asked by property investors regarding tax depreciation, so why does a unit get more depreciation deductions than a house?

buying an investment property
Are you watching others around you build their property portfolios and wondering how to buy your own investment property?

When investing in units you need to determine depreciation deductions available in a property, factors which affect
calculations include:

(a) Purchase price of the property
(b) Date which construction commenced
(c) Settlement date
(d) Land value
(e) Value of fittings and fixtures within property (where relevant)…

The overall cost to build residential units increases due to the amount of infrastructure involved in walls, services, etc by comparison to the less compact layout of a house or residential property which can make a significant difference to overall tax claim.

Units as investments often contain more fixtures and fittings than a house which means owners of a unit not only can claim items within strata unit (i.e. lights, carpet and dishwashers, etc).

Unit investors are also entitled to claim their share of the common property. Common property has been identified by the Australian Taxation Office (ATO) as areas within a complex or development which are shared between owners.

This includes areas and items such as:

  • Driveways
  • Pool and pool pumps
  • Outdoor furniture
  • Lifts/fire stairways

The following example compares a unit and a house (using same purchase price, construction date and settlement date), there is a difference of $15,000 in depreciation deductions over first five years of ownership.

Australian Taxation Office tax benefits: The ATO’s legislation recognises quantity surveyors as qualified to estimate construction costs for depreciation purposes.

As a building gets older its items wear out and depreciate in value. The ATO allows property owners to claim this depreciation as a tax deduction. Depreciation can be claimed by any property owner which receives income from their property.

Most investors are aware they can claim deductions on building structures of a unit (subject to age) including plant
and equipment items within such as:

  • Blinds
  • Carpets
  • Ovens
  • Range hoods
  • etc…

Many investors are unaware they can claim on common areas as well. Is it worthwhile for investors to consult a professional quantity surveyor to calculate the most accurate and financially returns for the property investor?

Accountants and real estate agents may on occasion estimate depreciation figures, although these professions lack construction cost knowledge and the capability to accurately determine depreciation deductions available in an investment property.

Most importantly the ATO does not recognise their figures in a tax return.

That’s why consulting a quantity surveyor which specialises in depreciation guarantees you…the investor to get the maximum legitimate deductions available.

A site inspection allows the quantity surveyor to establish maximum number of plant and equipment items within the property which includes measurements, photos and notes are taken to enhance the depreciation report.

If an investor is audited by the ATO, their depreciation claim will be supported by evidence documented at the time of inspection.

A quantity surveyor can determine correct proportion a unit owner is entitled to claim for common property based on criteria such as size, position within development (eg. penthouse or ground floor) and even its view based on relevant building plans.

If you decide to engage a quantity surveyor to complete a tax depreciation report on an investment property, any fee associated with the production of that report is 100% tax deductible.

Buying investment property means you would be in a position to pull equity out of your property(s) now and invest again. Why? Because you can…you also understand the process of paying less tax, plus how the chain reaction happens by continuing to invest.

Buying an Investment Property

Why Buy Investment Property?

Before you buy investment property, you could ask yourself a few simple, yet powerful questions.

 

The content is general in nature and it’s important for investors which may be contemplating buying investment property to note further investigation is required in order to identify specific properties for investment potential…

According to Australian Bureau of Statistics (ABS), 97% of people aged 60 or more are in some way reliant on a government pension. In case you don’t know how much a pension is worth, imagine trying to survive on $15k pa (if single) or $24k pa (for a couple).

(a) Debt free family home still doesn’t produce income for utilities, food, transport, hobbies, and holidays

(b) Superannuation will be nowhere near enough to replace the income required to live life on your terms

(c) A “rule of thumb” formula for calculating the size which your investment portfolio (net of all liabilities) needs to be is to multiply the required income stream you want by 20.

For example: Required income (debt free) x 20 = Investment portfolio value (net of liabilities) $80,000 pa x 20 = $1,600,000

(Above figure excludes the value of your family home and does not factor inflation)…

buying investment property
Buying investment property with a focus on successful investment properties in highly sought-after locations

First question, “am I buying investment property or (PPR) principal place of residence? Next, “why would I buy investment property”? The answer to both questions is where to buy and what area(s) you know or feel comfortable?

Buying investment property or principal place of residence in context to if you are going to live there?

Generally speaking, any in market it is important to understand capital growth cycles, (structural change which is occurring) your target market (demographics, right style of property for right location) and population growth.

Key is understanding how the contract does not get in the way of closing deal because the contract must protect the interests of you as the developer and ensure settlement takes place smoothly. Of course, you want the maximum financial return, right?

Investment property has many different purposes, you are wanting to maximise your wealth via property investment so you need to factor your capital, borrowing capacity, lending institutions combined with macro and micro indicators.

Buying investment property involves due diligence with a clear strategy to focus on, which can give you real confidence you are investing based on correct research criterias and more than just a gut feel.

Buying investment property the infrastructure investment: The government and private enterprise spend billions of dollars each year on roads, transport, hospitals, mining, resources etc…

Look at what they are spending funds on and what impact the infrastructure has long term in those areas.

Buying investment property the populatIon growth: The Australian national population growth rate was 1.7% or 394,000 new residents in Dec 2012. Take note of where those people are moving too. Is it a capital cities, regional cities or regional areas? We also look at interstate migration, which is generally associated with employment opportunities or lifestyle choices.

Buying investment property the economy and employment factors: What is the diversity of industry? Consider what business/industry is in the area you are investing in.

Does area have a cross section of industries that can support current and future employment or is it reliant on one main industry?

Buying investment property the supply and demand relationships: Is there an oversupply or undersupply of residential housing? If there is an undersupply you are likely to see increased rental income and improved cash flow for an investor.

In this scenario you will also see a lowering of the vacancy rate. Undersupply could also put pressure on property prices. With an oversupply the opposite normally occurs for an investor. Rents decrease, vacancy rates increase and property price can decline.

Amenities: The better the amenities are the more attractive an area become for people wanting to rent. Look for good employment, schools, shopping centres, medical facilities, sporting facilities and café lifestyle.

Transport is a very important consideration: Look for a combination of good public transport and does it service the area well especially in the exact areas you are looking to invest in?

Buying investment property and rental yields: Rent yields are determined by the supply and demand of property. When investing it’s finding the balance between your rental income and cash flow.

If there is an oversupply of rental properties your rental income will reduce. This affects affordability and holding costs for investors.

Value: Look at the price of the property relative to similar properties in the same area. This will give you an idea of the real value of the property. Also consider the likely resale value by looking at the properties that are currently being sold in the area.

Design: Take a good look at the design of the house. Is it practical? Will people want to live in it? Does is have good natural light? What aspect does it face? What is the internal size of the property as this could affect future resale?

Projected Capital Growth: When you look at the macro and micro indicators to help you decide where to invest you give yourself a strong opportunity to see long-term growth with your property.

You can clearly see the crucial relationships of due diligence and number crunching in conjunction to all the above and using these macro and micro indicators which can really help you answer the big and important question, where do I buy?

If you want to know more about  buying investment property please click here to contact us.

Buying Investment Property

Buy Investment Property | home buyer vs property investor

Buy Investment Property 

To buy investment property from a home buyer’s perspective, would you buy investment property before your first home? There’s a proven strategy to buy investment property, right? Are you a first home buyer?

If you buy investment property, would you consider giving up first home buyer’s grant and continue renting so you can start building a property investment portfolio first?

buy investment property
Buy Investment Property - Why consider using a buyers agent or buyers advocate?

If you buy investment property, it means you could quickly yield income in two ways through rents and capital gains. Are you considering buying investment property before making the emotional plunge into home ownership?

Most home buyers expect their first property investment will be their home, but are there good reasons to buy investment property? Why? Because there are pros and cons depending on your focus and circumstances.

There are two types or classes of investors, fundamental and professional. As a professional property investor, you’re consulting with advisors about your financial plan and investment strategy for maximising profits and tax deductions, right?

Professional property investor establish the team and only after consulation buy investment property making sure finance is pre-approved.

As a home buyer or property owner, you’re buying property before finding your team of advisors…does that make sense?

First step; build your team of trusted advisors because if you haven’t got a solicitor right now, you’re not ready to buy.

Does it make sense or do you think it’s logical to buy investment property in your own name and to buy without consulting financial advisors first:

  • Accountant
  • Solicitor
  • Financial planner

Next logical step is to make sure your team is experienced with proven results in the area you want to achieve. It’s important to understand once you’ve bought investment property, it’s expensive, difficult to change names and entities, right?

Why make property investments your long term plan?

If you choose to buy investment property short term, this means 5 to 7 years and long term is 10 years plus. So if you’re buying investment property and looking to sell in one to two years, the buying and selling costs would make it prohibitive.

Would you be better of looking at another investment source?

Perhaps risk minimisation and asset protection are far more important to you than wealth creation? If you’re not protected for personal injury, sickness or liability it disappear fast.

That’s why you’d be very smart in utilising income protection, landlord’s insurance, building insurance and ensure you get adequate cover which is all very important.

Location is the fastest and safest rule for where you buy investment property. The choice is for a thriving infrastructure. Do research using government websites and see where government is allocating funds for infrastructure.

Now, if it’s in a capital city make sure there’s already good infrastructure in place with established roads and good councils with established suburbs.

New suburbs generally take 10 to 15 years to level out so you want to take all this data into consideration for picking a town. It’s a good idea to stay away from areas linked directly to only one source of employment…

When is a good time to buy investment property? Firstly, it’s critical to do your research and know property cycles, so you need to consult your team of advisors in respect to different types of property investments.

The fact, the best time to buy investment property it really all depends on your own personal circumstances. What if right now is the best time to buy investment property?

Here’s a short property investments check list:

  • Are you developing a long-term financial plan
  • Are you between 20 and 60 years of age
  • Is your current income bracket more than $40,000
  • Do you have a strong income history with access to borrowed funds
  • Can you easily invest $50 to $150 per week
  • Are your personal finances organised in a structured way

If you answered “Yes” to most of the above, are you ready to go with new property investment opportunities? Next logical step is to make sure your legal structures are in place and how to best utilise the tax system for your wealth creation…

Only if you fully understand property investments as a long-term strategy can you appreciate and accept it as a non emotional decision…does that make sense?

Property Investments Now can help you to buy investment property with a goal of reducing your taxable income and increasing your income streams using cash flow property

Buy Investment Property