Property Investing Tips & Tricks:
Investing in property has always been seen as a safe and effective way to build wealth.
The tangible evidence of your 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.
Is it easier if I already own 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.
Utilising 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.
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 and 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.
Advantages of investment properties
In general terms a property is considered a moderately low-risk investment, and can therefore be viewed as a less volatile than shares for instance. Some of the advantages in investing in property include:
A number of deductions can be claimed on your tax return, such as home loan interest, property repairs and maintenance, council rates and taxes, insurance and agent fee’s.
When the return or income you receive from your rental property is 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.
Loss which may be claimed as a tax deduction
- *Consult with your tax adviser to see how negative gearing can be applied to your personal situation.
Thinking about your long term goals? Investment properties are a great opportunity to achieve your goals and fund your retirement.
Low-risk investments are very popular amongst property investors that would like to invest, have more control over your investment,and without the higher associated risk in comparison to for example the share market. Property is currently in high demand and we are seeing rental income at a return of between 4% & 8% which is quite a profitable return.
If you decide that you would like to release funds to invest in in something else, your potential lender will assess your current asset portfolio and this will in some cases have an effect on your borrowing potential. You will be highly regarded by your new lender if you have an investment property and you have shown that you can manage repayments without defaulting.
High leverage possibilities & loan to value ratios
A property investor can purchase up to 90% of the property price with mortgage insurance and this higher leverage capacity results in a higher return for the investor at a lower risk as it enables the investors personal finances to be available and not incorporated into the new property purchase.Please note that there is usually no mortgage insurance payable under an 80% loan to value ratio.
It’s important to note that you can make property investing work for you if you research and choose a property to suit your long term needs and goals however here are some disadvantages to be aware of:
Disadvantages of investment properties
It takes time to sell a property and it can take many months before the sale to come through which means that you will have to wait before you can see financial rewards or access sale proceeds. There is no quick way to sell your property if something goes unexpectedly wrong.
In the event of when or if your property is untenanted, you will need to cover the full mortgage repayment from your own finances. It’s a good idea to also factor in any repairs or maintenance that you may be required to pay from your own funds.
Unfortunately not everyone is as responsible with your property as you are and the wrong tenant can damage your investment, refuse to pay rent and refuse to leave when asked. Disputes can sometimes take months to resolve.
Rising interest rates
If you have selected a variable rate for your investment loan than there is always a risk that your mortgage repayments can increase which can cause financial stress if you have not factored the rate rise into your finances. Interest rate rises can also have an effect on the liquidity of your investment by extending the property sale periods.
In addition to the standard costs such as rates, strata or home insurances is the ongoing maintenance costs associated with the new property – the age of the property will have a bearing on how much it will cost you in ongoing maintenance.
Having all of your eggs in the one basket so to speak can have significant effects on you if that one area of the market crashes.
Capital gains tax & other costs
You may be charged capital gains tax when you sell the investment. Other costs which are incurred when you sell the property i.e real estate selling costs need to be taken into consideration.
Please contact First Choice Mortgage Brokers on 1800 111 455 to speak to a finance specialist for more information on investing today.