5 tips for clever property investing
Investing in property doesn’t have to cause stress and worry, provided you have the right information and make the decision that works for you. To help you do just that, here are five things to consider before you buy an investment property.
1. Using the equity in your home
Equity can be a smart way to secure finance when buying an investment property. If you own at least one-third of your home, or your home has increased in market value, you are in a good position to leverage the equity in it. You can do this by refinancing or redrawing your existing home loan to a greater value and using that to fund a deposit for an investment property.
2. Choosing a loan
When investing, it’s important that you choose a loan that works best for your financial needs and your lifestyle. Fortunately, there are many options available for investors. These include variable and fixed rate loans, as well as features like loan redraw and mortgage offset accounts. You also have the option to combine the stability of a fixed rate of interest with the flexibility of a variable rate of interest. Our tax advisors can assist you to structure your loans to ensure you maximise the deductibility of interest related to the purchase of your investment property.
3. Work out the costs involved
When looking for a loan, it’s important to remember the other costs involved in purchasing an investment property. These include stamp duty, Land Titles Office registration fees, loan mortgage insurance (if you are borrowing more than 80%), mortgage application fees and conveyancing fees. If you do invest, be sure to keep records of all expenditure to minimise your tax.
4. Tax implications
You may have heard reference to ‘negative gearing’ in relation to investment properties. This refers to when the interest on the borrowing and other costs of maintaining the property exceed the rental income generated from it. You can use the loss you have incurred to reduce your taxable income.
Though this can be advantageous, it’s important that the tax advantages of negative gearing are not the only deciding factor when investing. Residential investment properties have the potential to provide investment security, capital growth and rental income as well as tax advantages. It’s a complex area, but good tax advice can help you maximise your deductions, minimise your tax and bring forward the timing of any tax refund.
5. Review your insurance
When taking on extra lending commitments, particularly if you are considering negative gearing, you should also review your income protection insurance. It can help you to pay your everyday living expenses (such as mortgage payments), other expenses (like car costs and electricity and gas bills) and premiums may be tax deductible. When investing in property, make sure you have the right team of professionals supporting you. Your accountant, financial planner, solicitor and banker will be an important part of assisting you through the property investment journey.
Feel free to leave a comment below with any questions you may have.