PROPERTY INVESTING
They will demonstrate how this works in with your portfolio building strategy. Depending on your debt, tax payments and time left in the workforce, this may either be an aggressive, medium or passive strategy. Clients are then required to place a holding deposit and fill in an expression of interest to secure the property.
If you are ready to begin working on buying an investment property to kick of your portfolio, then contact Property and Finance Solutions. We will be more than happy to help you achieve you goals in becoming financially independent through property investing.
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If you have equity in your home, one of the questions I ask is, ‘How much is your equity earning you?”. If you’re not utilizing your equity to invest, then the answer will be ‘Zero”. Whether you can borrow for investment will depend on a number of factors and this will differ for each individuals circumstances. Speaking to one of our expert consultants will allow us to determine if you are in a position to borrow and they are better equipped to provide information instead of your local bank manager. If your credit score is untarnished and you have sufficient income there is no reason why you should not be able to borrow to invest. Obviously, the ability to repay the loan is a major concern. With interest rates being so low and with an investment in property that gives you a positive cash flow, then this concern diminishes greatly.
If it is purchased as an investment, depending on the location and, here is the cruncher, if it is rented out for half of the year or more at twice the normal rental rate, then the returns can be even better than permanent lettings. If you want to keep it for your own holidays, then the expenses (which include the interest) will not be tax deductible, turning your property into an expensive luxury.
There is a massive difference between good debt and bad debt. Good debt is money borrowed to buy assets that grow in value over time. If I am able to claim the interest paid and the depreciation on the tax I pay, then this is an added bonus. This is what makes property investment so exciting. If I borrow money to buy consumables such as holidays, cars and lifestyle products, then these are all throw away items that do not grow over time. If I use a credit card that and am paying 20% on my purchase, then I end up paying double over time for a consumable that doesn’t give me a long term growth benefit. The Rule of Thumb when spending, borrow for fixed assets that grow in value and use cash or credit card paid on time for consumables.
Buying real estate in an up-market suburban area may be costly and can offer significant capital gains. However, the real cost is calculated by determining the net yield over time compared to the expected capital gain. If the cost of maintaining the property each week after deductions such as taxes, tax variations and depreciation calculated over the time which you wish to hold the property is significantly lower than the expected gains after tax, then the investment decision may be a sound one. Buying a more expensive property, doesn’t mean your rent will be higher. Your percentage yield is generally lower. Currently, with interest rates being so low, this type of investment is affordable. If they stay low and your property increases its value in time this may end up being a great financial decision. Affordability may be an issue if interest rates go up dramatically.
The first step is to determine your true borrowing capacity. This is not what your branch manager tells you. There are factors such as future interest rate hikes, variations on valuations, etc that need to be taken into consideration before determining the affordability. A Property Investment Analysis is also required to determine how the cash flow will be affected by the interest payments, tax variations and depreciation. As a property investor, your contribution to the interest is made after the taxman and the tenant have paid their shares. If the property is cash flow positive, then you will have money in your pocket that can be used to pay down mortgage debt. This is an ideal scenario. If the property is negatively geared, this means that you will have to contribute to paying the interest on the loan. So really, if the amount left over is as small as $50 per week on the first year, can you afford this? Don’t forget that your contribution diminishes as the rental price increases over time.
History tells us that properties in all major centres in Australia will generally double in value every 7 -10 years. This is about a 7% growth. This growth rate is not consistent. Growth can be low over a period of time then suddenly experience 10% – 12% capital growth over a couple of years. In the long run, we always come back to the historical growth. What will determine if your property growth will be faster than this is some sort of major changes to the location (i.e. improved infrastructure, transport, shopping precinct, employment, etc.). Our team of property experts have live feeds as to which areas are the best for your property investment.
We know that a buy and hold strategy on new property is the best way to effectively maximize on tax benefits and growth. These types of property are generally not available through your major real estate websites like Realestate and Domain. The investor channels operate differently and what you need as an investor is an investment expert who has access to these channels. The expert does all the scrutiny and due diligence based on sound market knowledge first before offering property investment scenarios. You may find great bargains every now and then, but we’re not into speculation.
Statistics show that people who are self-employed have a better history of meeting their payments than PAYG employees. This may have something to do with the fact that self-employed people take responsibility for all of their actions. As a lot of self-employed people are not able to prove their entire income or their taxable income on paper may be low compare to the amount of money they have, it is sometimes difficult to secure bank loans. We have different strategies to dealing with self-employed clients that may range from SMSF solutions to positive cash flow scenarios. A quick chat with one of our investment consultants will help you understand whether you are able to invest in property.
You do not require the cash to make a deposit on a new property investment. The best way is to use the equity you have accumulated in your own home. With the right loan in place, you can use funds secured by your equity to make the deposit on your investment property and also cover the Stamp Duty and fees. The rest of the funding comes from a separate investment loan. A good finance broker will always set up the loans using separate securities and different lenders. There’s a good reason this structuring is implemented for all your investment property. One of the brokers at Property and Finance Solutions can explain this in a personal meeting.
In general, an accountant may be capable of answering your questions. However, it is best that you seek a specialist if you are interested creating financial independence through building a property portfolio. Accountants are not property investment experts and therefore, may not be equipped to provide property investment advice. There are some accountants who do invest in properties and specialise on the subject. They may be able to guide you in the right direction if you are to consult them. Our experience has shown that they may be restricted by the scope of investments they have access to.
This is an all too common problem. Bank managers are not property investment experts. We also believe that 90% of mortgage brokers are either ill equipped to deal with securing funds for property investment or they put it into the too hard basket.
Property and Finance Solutions work closely with expert finance brokers that are experienced in dealing with all facets of property investment finance. They don’t just use the 4 major banks for funding. We have Mortgage Managers that sometime offer much better rates and conditions. They will even show you how to structure your loans to maximize on your cash flow to reduce debt quicker. That’s something you won’t get from a bank.
If there is one way to lose a friend or get in the bad books with family, then that is to get involved in a shared investment. Your ideas may not be the same as theirs and this will always lead to difficulties. Reliance on regular payments of debt can also be a problem with family. If the investment appears to be sound, try to go it alone. If you are convinced that a partnership is the only way in which you can afford to get started in property investment, make sure to have a solid agreement in place and that each party is fully aware of their responsibilities. Always make sure there is an exit strategy in place as well.
At Property and Finance Solutions, we have certain criteria when investing in both apartments and house and land packages. Both are good for achieving good rental returns and growth if done correctly. E.g. we do not recommend buying an apartment in large complexes. The reason for this is that, many estate agents will be competing to rent these out and rental returns may suffer. When selling down the track, at any given time, there may be several apartments for sale all competing with each other. This is why we prefer small boutique developments.
This is a no brainer. Your rental property should be in a location that offers the benefits of proximity to employments hubs, close to transport, infrastructure spending, close to shopping, schools and parks. If your rental property ticks all these boxes, then you will ensure great capital growth and strong rental returns in comparison to a property in a below average area.
Successful property investors check the Property Clock to see an opportunity to purchase investment properties. The Property and Finance Solutions team all use the Property Clock to determine which areas a due to experience significant growth. One can never tell when things will start to take off. This is why we assist investors to take the necessary steps and precautions to ensure their ability to hold on to their property investments for the long term. This is how to create financial benefits in the future.
The Capital Gains Tax was created to encourage long term investment and to discourage short term speculators. This tax allows long term investors to enjoy tax benefits while purchasing investment properties. However, investors need not pay the Capital Gains Tax until the property is sold. Should the property be negatively geared, the tax amount will increase accordingly
Good property management is fundamental in making sure your property investment is working from day one. Property and Finance Solutions has contact to excellent property managers that can have a tenant ready and waiting to move in as soon as the property is handed over. We only choose properties in growth areas where vacancy rates are low. In general where vacancy rates are under 3%, then this is an investor market where we can achieve maximum rental for property. Major centres of growth in Australia have had vacancy rates for rental properties at about 2% which means that your property is likely to be vacant for approximately one week per year. If you make sure that this is allowed in your budget, then you should not encounter problems.
Any sound property investment strategy is a long-term buy and hold strategy. Investors get itchy feet when the price of real estate is stagnant over a couple of years. Selling a property too soon may result in significant losses and may leave a bad taste when looking to invest anew. History has shown that prices tend to double every 7 – 10 years in any major Australian city and this is a fact that patient property investors rely on. The other tendency that many people are not aware of, is that prices often double over a shorter period of 2 -3 years. It is this type of growth spurt that speculators look for. To sell at the end of a stagnant period to find that property prices doubled two years later will have investors kicking themselves. Patience is the game. Your property investment strategy is based on long term growth and consistent long-term tax benefits.
If interest rates are low when you set up your investment, you should consider fixing them when you set up your finances as protection against rising payment costs. Keep in mind that interest rate drops generally happen before property prices rise.
This depends on where you are buying from, the amenities in the property as well as the potential tax benefits. If you look into a property on the lower end of the market, it is likely to have a higher rental yield which will result in a much better cash flow. These types of properties may also attract more tenants with their lower rent. If you wish to sell the property upon retirement, selling a smaller property will have more flexibility in comparison to selling a larger one. As for larger and more expensive properties, you will be rewarded with higher capital growth, fewer maintenance problems and enjoy better tax benefits.
The government has already tried to do this many years ago. This was a big mistake and the backlash was immense. They tried removing the right to claim interest losses from rental properties against the income they generate. There were so many problems in the rental market when investors sold up that the government reintroduced negative gearing two years later. There is already a massive shortfall on housing for an ever increasing population. The government would be remiss to try the same mistake again.
While you still have mortgage debt on your principal place of residence, it is in your interest to maintain an interest only loan on any investment property. You still retain the title to the property and your main focus is on increasing your equity over time. When the mortgage debt is gone and you have started building a portfolio, the next step is to start reducing the debt on investments. Your goal is to create cash cows, i.e. unencumbered income producing assets. A Property and Finance Solutions property expert can show you how to do this.
Properties Sold
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Property and Finance Solutions management has had years of experience in providing people with successful property purchases.
Properties Available
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With access to properties across Australia, including apartments, townhouses, duplexes, dual occupancies and development sites; Property and Finance Solutions have property options to suite any buyer.
Years of experience
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The Property and Finance Solutions team alone have a combined 65 years of experience within the property industry.