Purchasing Investment Property

Why should I invest in property?

Buying an investment property continues to be one of Australia’s favourite ways to invest. An investment property should be about increasing your wealth and securing your financial future.

As the equity in your home increases substantially many people start thinking about purchasing further property as investment.

If you are thinking of arranging loans to secure an investment property call one of our brokers. We can assist you to secure a suitable loan that will help to minimise your risk and maximise your return.

How much equity do I need in my home before I buy an investment property?

You can access up to 90% of the value of your home for the purpose of investing in property which eliminates the need for a deposit.

This is your useable equity.

For example if your home is worth $400,000 and you owe $250,000 the amount of equity available for a property would be $110,000. This is the amount that you can use for security or for a deposit on an investment property.

Is it a safe move for me to buy an investment property?

We believe that bricks and mortar is still one of the most robust investment classes, especially in the long term.

When you factor in the return and risk associated with buying property  or buying shares, property wins hands down in our opinion.

It’s easy to understand and doesn’t take a lot of time from your life to manage your investment. You need to keep in mind that how effectively you manage your investment will determine whether or not the investment helps you reach your financial goals.

The cost of owning an investment property can be surprisingly low after you take into account your rental income and the tax deductions you’ll be entitled to.

What are the advantages of investing in property?

As the property market is usually more stable than the other markets, investment property generates fixed returns to the investors.

The income is usually more certain because you receive constant rental payment from the tenants. In the case that the rental income is higher than the mortgage repayment, you do not need to put any extra funds to pay off the loan and you may also have surplus funds to cover any property costs incurred.

If you purchase the property in a good location, the property value will increase and you can generate more profit.

Any tax associated with the expenses paid on the investment property, such as property maintenance, council rates, fees charged by managing agent can be claimed back at the end of the financial year.

If you have an investment property, you can also use the existing equity in the property to get another loan or to purchase another investment property.

Can I use my super to buy an investment property?

Self-managed super funds have been around for some time – however, it’s only in recent years that investing in property via super has emerged as a feasible option due to changes in the law regarding borrowing.

It’s incredibly tax-effective: CGT on sale is often lower through your super and is currently zero if you’re over 60; a recent ATO ruling also means you’re now allowed to renovate properties held within the fund too.

However, you do have to stay within the rules, which are quite complex, so seek advice before going down this route.

Is there any way I can find out the hot spot areas to buy an investment property now?

It is always a good idea to do some research yourself however we also have a very experienced contact available to us that we can refer you to for more advice on areas that are hot to buy right now.

What is negative gearing?

Gearing simply means borrowing money to buy an asset. In the case of property, you have taken out a loan to purchase a property.

Negative gearing means that the interest you are paying on the loan is more than the income. As a result you are making a loss.

Neutral gearing means that the interest you are paying on the loan is equal to the income.
Positive gearing means that the interest you are paying on the loan is less than the income. As a result you are making a profit.

How does negative gearing work?

The basic concept of negative gearing is turning a negative into a positive.

The main aim of any investment is to make a profit, but unfortunately that doesn’t always happen. From an unexpectedly low rental market to unforeseen expenses when purchasing a property, there are several reasons why the cost of an investment can outweigh the income it generates. This is a negative outcome, but you can use it to your advantage when tax time rolls around.

The cash loss you notch up on your investment can be used to offset the income you receive, for example from your salary or wages, meaning that as a whole you will be required to pay less tax to the ATO.

In effect, you can use the taxation system to bear the brunt of the impact of your investment loss in the short term, and in the long term you will hopefully make a capital gain on your investment when the value of your property rises.