Thursday, 26 February 2015
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PROPERTY INVESTMENT FOR BEGINNERS
PROPERTY INVESTMENT FOR BEGINNERS
Investing
in property to provide a rental income is not just for the rich in Australia.
According
to the Australian Taxation Office (ATO) for the tax year 2011-12, as many as 72%
of the tax payers stated they earned an income from an investment property earned
less than $80,00 per year.
When it comes to building a retirement nest egg for the future, property
is still regarded as one of the safest long-term investments.
Investment housing loans soar, and may rise further after Reserve
Bank's rate cut
The value of investment housing loans has skyrocketed
in the past 12 months, jumping almost 20 per cent by the end of December 2014,
and economists are warning it will rise even further after the Reserve Bank's
surprise interest rate cut last week.
Consumer
confidence has also suddenly jumped back into positive territory
– breaking a 12-month horror spell of low confidence that has plagued the
Abbott government – thanks to the RBA cutting interest rates to historic
lows, cheaper petrol and stock market gains.
Investors in residential real estate has doubled
Economists
say lending to investors for residential property is now double the level in
2011, with the value of loans surging 7.2 per cent in December to be up almost
20 per cent for the year.
They say
last week's RBA rate cut, and the next one, will make residential rental yields
even more attractive to the yield chasers.
TIPS FOR BEGINNERS
1.
Know your budget
See a mortgage broker
and an accountant to find out what you can afford and how best to structure
your loan to maximise your rental return.
2. Don’t underestimate ongoing
costs
Include in your budget all the
operating costs for your rental property – remember you are going to run an investment
business. You also need to have a “sinking fund” for replacement of carpets,
repainting and repairs.
3. Be realistic about your
investment goals
Are you looking for fast
capital growth or wanting to hold the property long-term? During boom periods,
it’s much easier to renovate properties and turn them over for a quick profit.
In slower economic times, it may take many years to achieve the same growth.
4. Don’t over-capitalise
A rental property should
be safe and functional – don't spent lots of money on “luxury” looks and features
unless you plan to live in it sometime in the future.
5. Buy with your head
You are buying a business
so you need to buy with your head, not your heart. You only become emotional
about a property purchase if you plan to live in it.
6. Negative gearing and
Capital Gains Tax
If your repayments on the
investment loan won’t be fully covered by the rent, your property will be
negatively geared. While this can have tax advantages, it can also lead to financial
stress if you don’t have enough cash flow to cover the loan repayments, rates
or body corporate fees, so consider your budget carefully before buying
And remember, when you do sell
your investment property, you may have to pay capital gains tax.
7. Buying with the equity in
your current home
It isn’t necessary to have
your own home fully paid off before buying an investment property, as you can
use any equity you have built up as a way of getting the best loan but, remember,
don’t overstretch yourself financially.
8. Due diligence
Before signing a purchase
contract, make sure to see a solicitor, your accountant and have a building and
pest report completed on the property and a rental appraisal.
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