The investment property market can be a minefield, so it pays to do some research first. This information is provided as a guide only. We suggest you use it as a launch-pad for your own research.
Understanding the market, choosing the right type of property and knowing how to avoid the hazards are the keys to making property investment work for you.
Here are a few pointers to begin your research.
A business decision
Remember, investing in property should be a business decision. You’re not going to live in the property, so it’s irrelevant whether you like the design.
Location, location, location
Select a property that you expect to increase in value – at least during the time you intend to keep it. It should also have all the expected amenities, a good outlook, nearby schools and shops and be in a good location. Location is one of the driving factors affecting the price of an investment property – and the rental returns you can expect from it.
You may not find tenants immediately, or there may be periods when you are between tenancies. Make sure you allow for at least a two or three week period in each year when you won’t receive any rental income.
To find tenants easily, invest in an area with few rental vacancies.
If you’ve borrowed money to buy an investment property, you’ll be making loan repayments to the bank. If you’re renting the property out, you’ll receive income from the property in the form of rent from your tenants.
If the interest part of your loan repayments (plus any other investment expenses) is more than the income you receive from rent, you can claim the difference as a tax deduction. This is “negative gearing”. It may reduce your taxable income and thus save you money on tax.
Put simply, negative gearing of property lets you (under current law) claim losses and tax deductions when you expect to make profits in the future. This means that if you negatively gear your property, these items are 100% tax deductible (including mortgage repayments, property taxes, insurance, maintenance and rental fees!).
Note – this information is intended as a guide only and tax rules are subject to change. We recommend that you discuss your personal taxation position with your tax adviser.
Other things to consider
There are start-up costs associated with purchasing a property – conveyancing and other legal costs.
There are also maintenance costs rates, insurance, water bills – and the costs of finding tenants and collecting rents.
Getting your money out of the property in a hurry may be difficult.
You may also find you lack the flexibility to adjust your investment strategy quickly and easily.
Want to know more? Contact Us for further information