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 If
your goals and dreams are to build a portfolio of investment
properties then a carefully considered approach to mortgages
is going to get you of to a great start. Without the
right mortgage structure your gains in a property investment
can quickly disappear.
The two main reasons for property investment are immediate
reduction in tax through negative gearing and capital
growth of the property.
Becoming a property
investor
 The
first step is to determine your goals and dreams, then
structure your financial situation accordingly. Many
people use investing in property as a means of superannuation,
a nest egg for their future years.
You need to determine what is the maximum you can borrow
based on your current commitments. Use the mortgage
calculator to approximate this for you. An important
point to note is that whether the property you ultimately
purchase has tenants or not, a proportion of the proposed
rental income can be added in as an income stream to
further increase you borrowing capacity. Also from time
to time this property may be vacant, so be sure to consider
the possibility of paying this mortgage as well as your
own with out any tenants.
The deposit and transaction costs required when buying
an investment property are similar to those involved
in buying a home. The most significant difference is
the stamp duty. There are no concessions offered for
investors so these costs may be higher then when you
purchased your home. The up-shot is that some of these
costs have tax benefits which are not available when
you buy a home.
If you currently own a home and have experienced an
increase in property prices around your area, or you
have paid off some of your mortgage, then you may find
that this will cover all you costs. We can assist in
financing 100% of the total value of your investment
property plus costs. This will maximise the benefits
to your taxable position.
Negative Gearing
Negative Gearing is when you borrow money to buy an
investment property yet the rental income does not meet
the costs of owning the property. This loss can be offset
against your other income thus reducing the total amount
of tax you have to pay.
For Example: Investment Unit
Expenses - interest, maintenance, rates
= $1000 per month
Income - rent = $700 per month
Loss = $300 per month
You can claim the $300 a month or $3,600 a year worth
of expenses as a tax deduction.
Tax Benefits
You can enjoy the benefits of negative gearing an investment
property by opting to reduce your weekly tax expense
or by receiving a lump sum refund via your tax return.
You can claim some expenses
against your rental income including:
- Interest expenses
- Borrowing expenses (loan
application fees, legal fees, guarantee fees, search
fees valuations and survey fees, to name a few)
- Depreciation (furniture and
fittings in an investment property)
- Ongoing expenses (council
& water rates, accountants fees, insurance premiums,
advertising for tenant)
- Building write off (deduction
for building depreciation)
- Travelling expenses for maintenance
inspections
For more information speak to
your accountant.
Important Factors when considering investing
Investing in property is usually a long term strategy:
- Cash Flow - There is an upfront
outlay as well as the need to pay interest on the
investment loan, maintenance costs, council and water
rates and insurance. Rent may not cover all these
expenses.
- Use your existing home -
If you have existing equity in your current home you
can use this as the deposit for your investment. We
can assist in financing 100% of the total value of
your investment property plus costs. This depends
on the amount of equity in your home but it will maximise
the benefits to your taxable position.
- It is very important to
establish a structure that is conducive to your investment
strategy. After all, your first investment property
should not be your last. We will take the time to
discuss the best options available.
Here are some useful links:
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