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Did you know you can utilise your equity in your home to purchase an investment property?

Do you have your loan structured correctly?

Structuring an investment loan correctly is crucial to maximise taxation benefits, ultimately enhancing overall financial returns on the investment.

Investing in property

Property investment remains a popular choice in Australia for various reasons and is often considered a secure investment option. The combination of tangible assets, rental income, and potential tax advantages make property investment an appealing choice.

Whether you are pursuing property investment for capital appreciation, tax benefits, or as a retirement strategy, acquiring sufficient knowledge beforehand is essential, particularly if you are unfamiliar with the area. Your Home Loan Consultant, Mortgage Brokers, can provide guidance in selecting the most suitable loan type for your investment property.

Contact Your Home Loan Consultant Mortgage Brokers today to discuss your Investment Property prospects and to receive assistance with the Investment Property home loan application and loan structuring to maximise the taxation benefits.

Why invest in property?

Investing in property can provide a stable and secure investment opportunity with less volatility compared to other investment strategies. With the potential for consistent rental returns, owning an investment property can generate passive income for your retirement.

Diversification of Investment Portfolio

Investing in real estate adds diversification to your investment portfolio, reducing overall risk by spreading your assets across different asset classes..

Steady Rental Income

Owning rental properties can generate a consistent stream of rental income, offering a reliable source of cash flow that can help cover expenses and yield a passive income stream.

Tax Benefits and Deductions

Property investors may benefit from tax advantages such as deductions for mortgage interest, property depreciation, and property management expenses, which can reduce their overall tax liability and increase profitability.

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Tax Depreciation Schedules for Australian Property Investors

Navigating the landscape of property investment in Australia can be as challenging as it is rewarding. One critical yet often overlooked aspect of this journey is the effective management of tax depreciation. Savvy investors harness the power of tax depreciation schedules to unlock potential savings and enhance their investment returns.

Embracing Depreciation: Your Financial Lever

At its core, depreciation represents the natural decline in the value of property and assets over time. For investors, this isn't merely a conceptual decline but a tangible tool for tax deduction. Depreciation is the fiscal acknowledgment of wear and tear, and the Australian Tax Office (ATO) permits investors to claim this gradual loss in value against their income-producing property.

Tax Depreciation Schedules: A Closer Look

A tax depreciation schedule is a comprehensive report that outlines the depreciation allowances to which a property investor is entitled. This schedule is the investor's passport to maximising their tax benefits, prepared by a qualified quantity surveyor. It details the depreciation of both the structural elements of a building, known as capital works deductions, and the plant and equipment within, each diminishing in value at different rates.

The Unseen Benefit

The beauty of a depreciation schedule lies in its ability to serve as a non-cash deduction. You do not need to incur any out-of-pocket expenses to claim it. Depreciation schedules enable investors to reduce their taxable income, thereby diminishing their tax liability and, in many cases, securing a refund during tax time.

Maximising Returns with Depreciation

A striking observation is that many property investors need to claim their full entitlement, possibly due to a lack of understanding or the daunting nature of tax laws. However, with a clear depreciation schedule, investors can readily claim deductions on the wear and tear of building structures over a 40-year period and on plant and equipment, covering items inside the building that depreciate more rapidly due to their shorter effective life.

The Way Forward

Investors should consider obtaining a tax depreciation schedule when they purchase their investment property. This strategic move could translate into thousands of dollars in tax savings each year. It is crucial to engage the services of a professional quantity surveyor who is well-versed in the latest ATO regulations and methodologies.

In conclusion, understanding and utilising tax depreciation schedules are essential for any serious property investor in Australia. It's not merely a suggestion; it's an integral component of a strategic financial plan that can lead to significant tax savings and an improved return on investment.

Did you know that you do not necessarily have to wait until you have repaid your home loan before you can start utilising your ‘available’ equity to purchase an investment property?

The good news is you can access the equity without having to sell your home!

Using your Equity to purchase an investment property

First Time Property Investor Checklist

Investing in residential real estate, is likely to be a lengthy process and one that usually involves a plan for the long term.

Before applying for your investment home loan, ensure you have considered what is required before making the big purchase, we’ve outlined steps you need to take in that process.

Make the commitment

A property investment must be a long term commitment in order for it to be worthwhile, so the very first step is to ‘do the numbers’ in order to evaluate your budget, potential constraints and future financial and personal obligations including the potential impact on family members.

Consider your future as far ahead as you can. You need to assess your ability to maintain or improve personal income as well as your commitment and ongoing financial capability to continue to service the financial impact of the investment for a minimum of five to ten years, as that’s what generally brings premium results.

You need to also make the commitment to ‘manage’ the investment – even if you outsource the day-to-day tasks involved including locating suitable tenants, collecting rents, paying relevant costs in rates and taxes as well as ensuring that the property’s repairs and maintenance are kept up to date.

Obtain Professional advice

You now need to obtain professional advice. An investment in real estate is likely to be significant in relation to your current financial position.

If you have already discussed the investment with a licensed financial planner or investment adviser and residential real estate is considered the most appropriate in your current circumstances, you will have considered aspects including rental return, maximum capital growth and/or tax effectiveness.

You next need to locate a suitable property. There are buyers agents now available who can assist you in this process – potentially saving you money by disregarding inappropriate properties and concentrating on those that are more likely to deliver the highest return and capital increase to you over time.

Following that, unless you have cash or other investments that can be converted to cash to make your property investment, the next step is to contact a mortgage broker to help you to secure finance to enable purchase.

This will give you the opportunity to ask the broker as many questions needed to alleviate any uncertainty you may have about securing that finance.

Assistance from relatives & friends

Talking to friends, family and acquaintances who have already made such an investment, or are currently considering one, can help your awareness of stumbling blocks and potential issues that you might otherwise miss.

While any issues you face may seem new, it can help to bounce these off a trusted friend or relative who has been there before.

Although your family and friends is a good place to start, they may have best interest in mind, it is always advisable to seek professional advise.

Collate your information

In order to apply for finance, you will need proof of your current income, employment and your assets as well as all liabilities including debts, loans, rental payment, outstanding credit card obligations and any other due payments. Collate these and also any paperwork that helps support your personal position. 

Before applying for a investment property loan, minimise your current debt load, and if possible, reduce the limit on, or cancel any credit cards you are not using, as this is perceived by lenders as potential for debt.

It is strongly recommended that you have a fully assessed pre-approval before you start your search. This will allow you to know what your financial limits are so that you can make an offer when you’ve found a property you like.

Other things to consider

An investment property purchase should not be an emotional decision. It is a business decision. If the property isn’t as clean as you would like, don’t assume that it hasn’t been maintained unless there are other clues to demonstrate that.

Cleaning and even simple maintenance tasks are things you can do yourself or have done for you that you can include in your budget.

Consider choosing a property based on whether you feel like you could live in it. While it’s still a business decision, you also have to adopt the mindset that you could be selling to an owner/occupier down the track, which could be an emotional purchase for the buyer.

If however you plan to rent the property, your decision should be based on what would appeal to the type of individual who wants to reside in the area.

Lets Get In Touch!

Did you know?

You may be able to secure an investment property with the equity you have in your home.

Like to know how "We need to talk"

Getting your investment home loan structured incorrectly could cost you thousands.

Be sure to get expert advise before you start.

Rental property deductions can be complicated, but accuracy in your claims is an important element in successful investing.
Doing it right helps build and protect your wealth.

Getting started

November 3, 2018

10 Steps to Successful Property Investment

October 22, 2020

Claiming tax deduction on investment property loans

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Frequently asked questions

What is negative gearing?

If you earn less from an investment property than it’s costing you, you’re said to be negatively geared. The motivation to be negatively geared is that it reduces your taxable income and you accept a short-term loss in the hope of a capital gain later.

How much does a property manager cost ?

The cost of having a professional manage your rental property is between seven and ten per cent of your total rental income each week. So, for a property with an average rental return of $550 per week, you would need to pay the agent between $38.50 and $55 per week, which amounts to between $2,002 and $2,860 per year. If you compare this to the time commitment and potential costs you could face if you were to represent yourself at the tribunal, this weekly management fee is marginal.

What is the difference between an investment loan and a owner-occupied home loan?

Unlike a owner-occupied home loan, the costs associated with an investment loan are tax deductible (eg interest, fees, repairs, rates, depreciation, etc). However, be aware that any rental income will generally increase your taxable income. Another key difference is that any appreciation in the value of an investment property (capital gains) is taxed. Refer to your accountant for full details

What are the additional costs when purchasing an investment property?

Along with the cost of your deposit, you need to account for the cost of building inspections, stamp duty, conveyancing fees and any legal costs.

What are the ongoing costs associated with an investment property?

As the owner of an investment property, the ongoing cost you will need to pay could include council rates, water rates, insurance, body corporate fees, land tax, property management fees, repairs and maintenance costs. Keep in mind, all costs associated with a investment property, could be claimed as tax deduction when completing your tax return. Seeking professional from a qualified accountant is recommended.

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