Investment Information

Investing in property can be highly profitable. Investment provides a more secure future for you and your family. In order to maximise your returns it is essential that you are correctly informed and guided by a qualified Agent.

To assist you in understanding the fundamentals of property investment, Stocker Preston have prepared the following information. The information is based on frequently asked questions from potential investors.

Why Invest In Property?
Wealth is not necessarily determined by how much money you earn, but by what you do with it. With the correct guidance, investing in property can provide a secure future, without the need to invest a fortune each week.

Have you ever thought: “I wish I bought a property in (suburb) years ago?” Property increases in value over time so your initial purchase should be a wise one. Try increasing your portfolio as often as possible and hold on to your investments for as long as possible.

Benefits of property investment include:
Diverting money away from taxes
Viewing your tangible investment
Controlling what happens to it
Relative stability of investment (while shares fluctuate in value)
Use of the equity to increase your portfolio.

What is Gearing?
Gearing can be defined as the degree of borrowing against equity and income received in comparison to monies paid out.

Gearing can be divided into:

Positive Gearing: When the rental income is greater than the expenditure. Tax Impact: Tax paid on the excess income.

Neutral Gearing: When the rental income covers the expenditure, without profit or loss. Tax Impact: No tax paid on the income and you may receive a tax credit for depreciation on chattels and construction.

Negative Gearing: When the rental income is less than the expenditure.

Tax Impact: You can claim the loss as a tax deduction against other income.

The impact your investment will have on your tax.

It is important that you are aware of what you are able to claim. Here are some examples.

Mortgage Interest
Insurance
Land and Water Rates
Strata Levies
Bank Fees
Maintenance and Repairs
Property Management Fees & Charges
Advertising Expenses
Depreciation on Construction (if built after 1985)
Depreciation on Chattels (A Quantity Surveyor can provide a report for you)

Your Accountant should advise you of all entitlements and their fees can also be claimed. A Managing Agent will make life simpler at tax time through the provision of an “Annual Summary” this categorises all income and expenses incurred on the property over the financial year.

Consideration should also be given to Capital Gains Tax. Tax is paid at a marginal rate on 50% of the capital gain (provided you have owned the property for more than 12 months).

Example:
Capital Gain $65,000 Marginal Tax Rate 35% = ($65,000 x 50%) x 35% Therefore, you would pay $11,375 tax.

In order to minimise the impact of Capital Gains Tax, you should avoid selling property while in a higher tax bracket. You should also avoid multiple property sales in the same financial year.

How Should I Fund My Investment Property?
If you have equity in your home, you may be able to use this to purchase a property, instead of using a cash deposit. In this situation, as your equity grows, so can your investment portfolio.

These days there are a wide variety of loan options available. It is recommended that you consult with a Mortgage Broker to discuss which one best suits you.

A Principal and Interest Loan allows you to pay additional amounts off the principal sum. This is often used to finance personal property acquisition. With Principal and Interest Loans, you may be vulnerable to interest rate fluctuations, but you can pay off your home quicker.

For investment properties, an Interest Only Loan is often recommended. This loan only requires you to pay the interest and the interest rate may be fixed for a longer period.

Another option to consider is splitting your Loan.

As mentioned, investors are advised to consult with a Mortgage Broker. They have access to loan options offered by all financial institutions and can therefore find the one that best suits your situation. This service is free and their industry knowledge can save you a substantial amount of money in the long term.

Where to Invest
If you choose to invest in residential property, we recommend that you research the areas of interest to you. You may prefer to employ the services of an Agent who already has this market knowledge.

The two things to consider when choosing a property for the purpose of generating wealth are: the rent return and the capital growth. Many properties may offer good rent return but may not have high capital growth potential. The reverse can also be true. Purchasing a small home on a large block in an area being redeveloped, usually means that the property has great capital growth potential although it may not offer a high rent return.

The following features should be considered when purchasing an investment property as they help to attract tenants as quickly as possible.

Located close to amenities (schools, shops, transport)
Plenty of storage (robes, linen cupboards etc…)
Adequate security (window locks, dead locks, alarms etc….)
Additional comforts (air-con, heating, dishwasher etc…)
Low maintenance gardens
Secure parking facilities

And some further advice:
If you purchase a property and plan refurbishment, it is wise to speak to an Agent who can advise you of the potential extra income this may generate.

Ensure your new property is of a high standard and that it is maintained to this standard. This will attract a better tenant and provide you with a better return. High standards also make it easier for you to borrow against the property to increase your investment portfolio.

For more information on purchasing an investment property, please contact a member of the Stocker Preston Team. We will be happy to assist with your enquires.