“When you can’t get reasonable return on your cash in the bank, that’s when investors look to property.”
– Kesree Jones, General Manager, Sales Programs
– Kesree Jones, General Manager, Sales Programs
Low Interest Rates
Rental Vacancies
Capital Growth
Rental Yields
From what to look for in a potential investment to making the most of your finance opportunities.
Depreciation
If you’re using a property as an income-generating asset (i.e. rent from tenants) you can claim a depreciation deduction on that asset against the income you’ve earned. When it comes to what and how much you can claim, it all depends on how old the property is or how much improvement you’ve done to it. Brand new properties can be depreciated for a full forty years, which tends to make them attractive for investors.
It’s a good idea to talk to a quantity surveyor to understand exactly what you can depreciate on your property. They can produce depreciation schedules that will help make your claim easier at tax time.
Equity
Equity is the difference between what you owe on a property and its market value. Normally equity grows as you pay back a loan - effectively it’s the part you ‘own’. And it might be something you can access to buy another property without having to save a deposit again.
Negative Gearing
This is when you borrow money to buy an investment property and the income from that investment is less than what it cost you to generate it. Costs can include interest on the loan and expenses required to keep the property in good working order.
So, is this a bad thing? Not if you expect to offset your losses with a capital gain as the property’s value increases over time. And in the meantime, your investment loss reduces your taxable income and therefore the amount of tax you need to pay.
Property Management
Many investors choose to employ the services of a property management company to deal directly with tenants
and take care of essential tasks like finding a tenant, rent collection, handling maintenance and repairs, and ensuring all paperwork is in order.
Property managers can save you a great deal of time and stress, but they are an extra expense and quality of service can vary considerably, so it’s important to do your research.
Rentvesting
Rentvesting is a popular option for first home buyers who can’t quite afford to buy in their ideal suburb just yet. Put simply, buyers rent a home in the suburb where they want to live and buy in a suburb where they can afford, renting that property to a tenant.
For some, this is the compromise that allows them to live the life they want while using spare funds to build equity in their investment property. However, there are a number of tax implications to this arrangement that you should understand, so it’s best to sit down with a financial advisor before buying.
Strata
If you choose to buy an apartment or townhome, you’ll need to be familiar with Strata. This model of property ownership allows for individual ownership of part of a property (your apartment or townhome), combined with the shared ownership of common areas like foyers and gardens through an owner’s corporation or body corporate.
All owners in the scheme are required to pay levies. Levies are usually charged quarterly and sometimes on an annual basis and go towards the administration and upkeep of the scheme and any required works, scheduled or emergency.
– Anthony Boyd, CEO
Sources
1. Live Proud Autum/Winter 2021 Magazine, pp. 40-43, www.issuu.com/frasersproperty/docs/live-proud-mag_2021-autmn-winter_v5.1-issuu
2. Realestate.com.au, 19 March 2021, www.realestate.com.au/news/australian-vacancy-rates-break-a-10year-record-but-its-a-different-ball-game-outside-sydney-and-melbourne/
3. ManageCasa, 3 May 2021, www.managecasa.com/articles/australia-housing-market/
4. Realestate.com.au, 8 December 2020, www.realestate.com.au/news/why-now-might-be-the-time-to-invest-in-the-property-market/
This material is a general introduction to purchasing property and is provided as a guide, for education purposes only. Because the information is general in nature, it does not take into account your personal financial situation and does not constitute financial advice. So, you should seek personal financial advice that is tailored to your specific needs before purchasing property. Frasers Property does not make any express or implied representation or warranty that the information is accurate, complete or correct. Purchasers must make and rely on their own inquiries and the contract for sale.