Property Selection

Real estate property investment has always been very popular in Australia. It is an asset that has a sound and reasonable return history. While choosing property you should consider these valuable tips: Note, the following tips are by no means an exhaustive list, just a summary of what many of our clients ask to be considered when making their property investment decision.

Location

To be a successful property investor you should acquire your property in best location at a reasonable price. Keeping in mind, aspects of rental potential and capital growth.

Check for proximity to transport facilities, schools, shopping centres, sports and entertainment facilities and areas of future jobs growth.

Most property purchasers should be located in a safe, clean, attractive environment location. Preferably the location should have an already-established high rental demand.

Buy quality

It is very crucial that you buy a quality of the property.

The quality of the building must be appropriate for the market – for example, with at least two to three bedrooms if located in a family rental area. Look for some security if inner-city high-rise.

It should be well-equipped and built and have low maintenance and external areas, check that the gardens and any other outdoor areas are in good order.

If it is an apartment, make sure it is large enough to meet the approval of your bank or lending institution. Make sure a pre-purchase building inspection and pest inspection is done prior to make decision to buy.

Gross versus net returns

It is important that long-term capital growth is highly desirable when investing in property, However on a year by year basis you will also receive income in the form of rent. It’s useful to understand the difference between your gross rental return and your net rental return (the rent minus investment expenses).

Some examples of typical investment expenses include interest on the investment loan, rates, insurance, body corporate fees and maintenance.

Rental vacancies

In Australia, approximately 30 per cent of Australian households rent, providing a large pool of people who are housed in or looking for rental accommodation.

You need to be prepared that your property may be unrented for a period of time. You should allow a cash buffer to make sure you can continue to meet expenses and payments. However, well kept property in the right location assists any property to be more easily rented.

Reasons for failure

If you are making a direct investment in an investment property then the specific property that you choose will have a significant influence on whether you make a good long-term profit or not. Some common triggers for failure include:

The rental income is too low.
The maintenance costs are too high.
The loan taken out was structured wrongly.
The purchase price was too high
The property is in an area of low capital growth potential.
Vacancy periods are too long or too many.
Your property may not cover for some of the tax deductions allowed

Top tips

Do not rush to buy property as you must spend time researching the location that you are considering thoroughly before you decide to purchase.

Get independent advice on the sale contract before you sign.
Organise property evaluation and inspection before you buy
Remember that interest costs and property-related expenses are tax deductible.
Speak with your accountant about the issue of depreciation.
Have a long-term view.

Investment Property & taxes

There’s mixed opinions and advice available on implications of property investment on your taxes. We explain below what the different terms and approaches mean in simple words when it comes to the “tax office”. Here again, always be guided by your own taxation professional eg tax accountant.

What's Negative Gearing?

Negative gearing usually refers to borrowing for a residential property investment (e.g. a house, townhouse or unit) which is then rented out. When rents are less than the total property costs, which may include: - loan interest, depreciation, property management costs, rates & insurances etc. Then investors are able to lodge the negative costs expenses in their annual tax return.

Implications for Taxation Purposes

• Interest on an investment loan for an income producing purpose is fully deductible.

• Ongoing maintenance and small expenses are similarly fully deductible.

• Property fixtures and fittings are treated as plant, and a deduction for depreciation.

• Any residential construction investment properties, build after 1987 - Building cost become tax deductible.

Supreme always recommend any and all investors seek advice from tax accountant in regards to tax deductions and implications of capital gains.

What is Positive Gearing?

Positive Gearing occurs when you borrow to invest in an income producing asset and the returns (income) from that asset exceed the cost of borrowing.

Tax Deduction checklist for investment properties:

Following is an example list the typical deductions, mainly related to rental property, however Supreme always recommend to check with their accountant for all matters.

• Strata management or Body Corporate Fees

• Building depreciation

• Cleaning Costs

• Council Rates

• Depreciation on new fixtures

• Borrowing Expenses

• Insurance Costs

• Interest on loans and related bank charges

• Pest Control Costs

• Property Agent Management Fees

• Repairs and Maintenance

• Telephone, postage and stationary

• Water Rates

There are many other factors to consider while choosing your investment property such as is this property new or existing? Please do not hesitate to contact Supreme.