News and Blog

News and Blog

Investing Interstate

Jan 8th, 2019

Investing Interstate

Buying a Tenanted Investment Property

Oct 31st, 2018

Buying a Tenanted Investment Property

7 Tips for Securing a Business Loan

Oct 10th, 2018

7 Tips for Securing a Business Loan

What you need to Consider when Buying your Second Property

Aug 1st, 2018

Owning two properties is a great financial ambition and with Australian house prices on the rise, doing so has great potential to improve your financial situation in the long term. But please don’t be fooled - just because you have done it once before doesn’t mean it will be easy! Buying a second property also requires hard work, discipline and effort. Here are some financial pointers to help with the process of buying your second property.

8 Tips for Investing in Interstate Property

Jul 31st, 2018

If you live and work in one of Australia’s major capital cities, you are probably finding this task increasingly difficult in your local market as both prices and competition continue to increase.

Changes to Negative Gearing Tax Deductions

Jul 11th, 2018

Travel expense deduction scrapped

As of July 1, 2017, property investors can no longer claim a tax deduction for travel to maintain, inspect or collect rent for their rental property. Likewise, you can no longer claim travel expenses for preparing the property for new tenants, or for visiting a real estate agent to discuss your property.

Investors who own property interstate will probably be the most affected by this change. If these changes do affect you, perhaps consider employing a property manager to perform some of these tasks for you, as their costs are usually still tax deductible. Talk to your accountant to find out more.

Depreciation deductions tightened

Depreciation is the decline in value of an asset with a limited life expectancy. Depreciating assets include carpets, furniture and appliances like water heaters and cookers (also known as plant and equipment).

Residential property investors can now only claim depreciation deductions for plant and equipment expenses if they purchased them. Previously, investors could claim plant and equipment depreciation on assets that were installed by a previous owner.

This “integrity measure”, introduced in last year’s Budget, was intended to prevent multiple property owners from depreciating the same assets, exceeding their actual value. The changes apply to second-hand plant and equipment acquired after last year’s Budget night (May 9, 2017). You also can’t claim a deduction for plant and equipment installed on or after July 1, 2017 if you have ever used it for private purposes.

If you owned or entered into a contract to buy your investment property before May 9, 2017, you will not be affected by these changes. You can still claim deductions for depreciating plant and equipment assets that were in the rental property before that date.

Further reading

You can find more information about the expenses you can claim for residential rental properties on the ATO website, available here. You’ll find details about expenses that are deductible immediately, such as management, maintenance and interest; and expenses that are deductible over several years, such as capital works and borrowing costs.

Your tax time checklist

Here are some tips to prepare for tax time:
  • Update your Depreciation Schedule. You can find a Guide to depreciating assets 2018 here. If you’re confused, seek advice from your accountant. If it’s a new property investment, you may need to have a quantity surveyor prepare a Depreciation Schedule report.
  • Understand what you can claim (refer to the ATO website for clarification).
  • Get your documents together and organise your receipts.
  • Tally up your deductions. It’s a good idea to create a spreadsheet with all your income and expenses listed. That way, you can save on accounting fees (rather than giving them a shoe box of receipts to go through).
  • Book in with your accountant (they are flat out at tax time, so the sooner the better).
As your mortgage and finance broker, we’re happy to work with your accountant or financial planner on your investment property finance. And if you need a recommendation for a good accountant, we can help with that too. Good luck with your tax, and if we can assist in any way, please don’t hesitate to get in touch!

Refinance an Investment Property

Jun 11th, 2018

Why refinance?

Refinancing your loan allows you to access the equity in your property. Equity is the proportion of the property you own – for example, if the property is worth $500,000 and you owe $200,000 to the bank, then you have $300,000 in equity.

Savvy property investors use their equity for a variety of different purposes:
  • To renovate and add value to an investment property
  • As a deposit for their next investment property
  • To fund their lifestyle and living expenses.

Another popular reason to refinance is to secure a more competitive interest rate or a loan that better suits your needs. There may be loan features that can improve your interest savings or cash-flow, like offset accounts and redraw facilities. It pays to talk with your mortgage broker and reassess your property investment loans regularly, to ensure you’ve got the right loan to maximise your financial benefits and tax advantages.

Key considerations

1) Market value and equity
Generally, the right time to refinance your investment property is when the equity has grown sufficiently to take the next step in your investment strategy, or to fund your renovation plans. To get an idea of the value of your property, and how much your equity has grown, you’ll need to compare public sales data for similar properties in the area. Ask us for a free suburb and property profile report with the latest on-the-market information.

You could also ask real estate agents for an estimate (make sure you hit up at least three different agents) or pay for a professional property valuation. Keep in mind that a lender’s valuation will be on the conservative side of any estimates, and a formal valuation will be required by the lender before they will allow you to refinance.

2) Consider the costs
Switching lenders and refinancing your investment loan can help you achieve your goals, but there are costs involved. These may include break fees or discharge fees, establishment fees for your new investment loan, and valuation fees. Speak to us and we’ll run you through the costs and help you decide whether refinancing is worthwhile right now, or if it may be better to wait until your equity has grown further.

3) Investigate how the market is performing
Part of the decision about whether to refinance will depend on how the property market is performing for your investments. National dwelling values have been falling in many capital cities in recent months, while regional dwelling values have been edging higher. That may mean the location of your investment property will be a key consideration when deciding to refinance.

It’s important to be aware that if do you refinance after your property’s value has decreased, you may be facing negative equity territory. This is when the value of your investment falls below the outstanding balance on the mortgage. In this situation, it may be better to wait until the market recovers before you refinance.

4) Other considerations
The investment lending landscape has seen many changes in recent times. In April, the Australian Prudential Regulation Authority (APRA) announced the 10 per cent limit on bank lending to property investors (in place since 2014) would be removed for lenders that could demonstrate prudent lending. As a result, we’re seeing interest-only investment loans becoming easier to obtain, and interest rates being reduced by some lenders. That means now may be a good time to reassess your investment strategies and refinance requirements.

Talk with your mortgage broker first
If you’d like to access equity to grow your investment portfolio or renovate, or you just want to know you’re getting the best deal, it’s worth having a chat with your mortgage broker. You’ll find we are a wealth of information – and it’s always best to make a fully informed decision. If the time is right for you to take the next step in your investment journey, we’ll help you find the right refinance option to help you achieve your goals. Call us today!

Investing in Property

May 9th, 2018

Step 1: Talk to us about your borrowing power

The first step involves a friendly chat with us about the finance set-up. We’ll run through your personal financial circumstances and help you determine your borrowing power - which is the amount a lender may be willing to lend you. Your borrowing power may be very different for an investment property than for a home to live in yourself.

Like all property purchases, you’ll need a deposit. If you already own your home and it has appreciated in value, or you’ve paid down your mortgage somewhat, you may be able to refinance to access equity to fund it. We can explain how this works and the kind of loan that will best suit your situation. We can also organise pre-approval so that you can set a purchasing budget and be confident a lender will come through with the finance when the time comes to start investing.

Step 2: Formulate an investment strategy

Ask yourself what your ultimate objective is – do you want to build a big investment portfolio of 10 properties or more and make a business out of it? Or are you more interested in concentrating on paying off your own home, perhaps using an investment or two on the side to generate some money to do it?

We recommend seeking advice from your financial planner or professional tax advisor when formulating your investment strategy. Maximising tax advantages is a big part of property investing and knowing what they might be in your personal situation is key. Ask us for a referral if you don’t already have a professional on board.

Step 3: Set your budget

There are many costs to factor into your budget when buying an investment property. The financial side of a successful property investment is a balance between costs, income, tax deductions and how they affect your overall cash-flow. The costs to factor in may include the following:
 
  • Initial costs

  • Deposit
  • Loan establishment fees
  • Lenders’ mortgage insurance (if you have less than 20% deposit)
  • Stamp duty (calculators are available here)
  • Conveyancing and legal fees
  • Building and pest inspection reports
  • Quantity Surveying fees – to create your Depreciation Schedule for the fixtures in the property, so you can maximise your tax deductions (after purchase).

  • Ongoing costs

  • Rates/government taxes
  • Insurance
  • Mortgage repayments
  • Body corporate fees
  • Utilities not paid by the tenant
  • Property management fees
  • Repairs and maintenance costs.

Step 4: Do your research

The key to buying the right investment property is to spend plenty of time researching. Property investors usually focus on two key financial returns – capital growth potential (which is the growth in the property’s value) and rental yield (the income the property will generate from the tenants).

These factors are driven by supply and demand, so try to find a property that will be in high demand by tenants and future potential buyers. Ask us for assistance with the right property market data to inform your property searches.

Once you’re set on a property, be sure to organise building and pest inspections. You’ll want to know that the property is structurally sound and free of unwanted guests before making an offer or going to auction.

Step 5: Finalise your finance

The final step involves us helping you secure an investment loan that suits your financial circumstances and goals. Ask us to get you pre-approval on a loan for the specific property you want to buy before you make an offer or buy it auction, so you can have a realistic ceiling price to work with during the negotiations.

This step is the most important one of all if you’re buying at auction – you will be required to put your deposit down on the spot and it is not refundable if the lender does not agree the property is worth the price you paid and won’t lend the amount you need to complete the purchase. If you are buying under offer, we recommend you include a ‘subject to finance’ clause in the sales contract, to cover this contingency.

If you’re thinking about joining the thousands of Australians building wealth for the future through property investment, don’t wait to give us a call. Our mortgage brokers are here to give you expert guidance about investment loans and structuring your finance. Talk to us today!

Property Investment

Apr 6th, 2018

Negative gearing

Put simply, negative gearing is when the costs of owning a property - like the interest repayments, rates and maintenance costs - exceed the income you receive. Say you earn $25,000 in rental income and your expenses add up to $35,000, the property would be negatively geared to the tune of $10,000. This could potentially provide a significant tax break, which is why negative gearing is a popular strategy with property investors.

Positive gearing

As you may have guessed, positive gearing is the opposite of negative gearing. It’s when the income you make on a property is greater than the expenses. This could provide you with an income, however it should be noted that you will most likely be required to pay tax on this income. Another term for this is ‘cash-flow positive’.

Depreciation

‘Depreciation’ is a term used to describe the decrease in value of an asset over time. With a property investment, it includes items like stoves, carpets and hot water heaters. Each of these items depreciates a little bit each year according to a Depreciation Schedule you have drawn up by a Quantity Surveyor, and these amounts may potentially be claimed back as a tax deduction.

Capital gains

A capital gain is the amount by which the property increases in value, relative to what you paid for it. A capital gain is usually realised when you sell the property. However, if your property goes up in value, you can often borrow against the capital gain (also known as accessing your equity) by asking a lender to value the property and refinance your loan.

Capital Gains Tax

Capital Gains Tax is the tax you pay when you sell an investment property that has gone up in value since you purchased it. You need to report capital gains (and losses) in your income tax return.

Equity

Equity is the proportion of the property that you own. So, if the property’s worth $600,000 and you owe the bank $100,000, you have $500,000 in equity. Equity can be used in a variety of ways, for example you can potentially borrow against it to buy additional properties or fund renovations.

Rental yield

The rental yield refers to the money your tenants pay you. Rental yield is calculated as a percentage of the property’s value. You can calculate the gross rental yield by multiplying the weekly rent by 52 weeks, divided by the property’s value.

LVR

LVR stands for loan-to-value ratio. Essentially, it’s the percentage of money you borrow for a loan, compared to the value of the property. Lenders generally like to keep the LVR within 80% - so you would need a 20% deposit. If you don’t have a 20% deposit, you will be subject to lenders’ mortgage insurance which protects the lender if you default on the loan. This can be expensive.

We hope you’re feeling more comfortable with the lingo now! Our role as your mortgage broker is to advise you how to structure your finance according to your property investment strategy, and find you the right investment loan for your specific financial circumstances and goals. So, if you’re thinking about making a property investment, please call us today!

This article provides general information and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or loan product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. All loan applications are subject to lenders’ terms and conditions, and eligibility criteria. Lender fees and charges will apply.

Should I Buy An Investment Property Now?

Feb 12th, 2018

Last year saw some major curveballs thrown to property investors, which may have left you wondering whether a property investment strategy is the best way forward. These changes included the tightening of controls on banks for investment lending by APRA, particularly for interest-only loans, changes to negative gearing laws, and there was a slowing capital growth trend in some parts of our property market throughout the year.

But despite these uncertainties, if you are in a good financial position, right now could be a good time to invest in property. Here’s why.

National rents are on the rise

Deciding if an investment property is a viable investment often depends on the rental market for the property. For many investors, this is more important than how quickly the property makes capital gains. The good news is that rental rates are on the rise, according to the latest CoreLogic Rental Report. It found that over the December quarter, all capital cities except Canberra experienced a higher annual increase in rents over the past year, compared to the same period for 2016. The same was true for regional markets. If the rent covers the expenses and generates cash-flow, you should be in a good position to hold on to the property until its capital growth value meets your target for selling.

There is less competition amongst investors

In the past, foreign investors gave a lot of competition to local investors which has tended to drive up prices. Sales in new developments are now capped at 50% to foreign investors – and investors are only permitted to purchase new build properties if they are a permanent resident of Australia. This could potentially leave the market open to opportunity – particularly to those prepared to invest in established homes. What’s more, further penalties may apply to foreign buyers if they leave their investment properties vacant.

Savvy investors could come out well ahead

If home values in the market you are considering are slowing, you may have more capacity to negotiate the price with the seller and perhaps snap up some bargains. According to CoreLogic, previous downturns have seen the annual number of sales fall by around 20-25% from peak to trough, and with fewer buyers in the market, sellers may be more willing to drop their price.

Some markets are booming

Just because dwelling values may have declined a little in some markets, it doesn’t necessarily mean this will happen in all of Australia’s property markets. Some locations are still making excellent capital gains – the key is to do your research and find the right property in the right location. Take Tasmania for example – Hobart experienced double-digit value rises last year, ending at +11.5%!

Keep in mind that lenders are very specific when valuing a property. They make an assessment right down to the suburb, street and house. You should do the same. Consider the capital growth potential and the rental market.

A fall in prices won’t spell disaster if you get your finances right

Whilst analysts are expecting a general slowdown in national housing market conditions in 2018, the beauty of property investing is that you can usually weather the storm (if there even turns out to be one). Experienced investors know the property market will always fluctuate – so being in control of your finances so you can control when you sell is key. A good loan strategy is just as important as your buying strategy, so talk to us about your finances to ensure you’re in a secure position before you make your next move.

We can help!

In a softening market, a savvy property investor will take a longer-term approach. It’s important to be aware that if you are taking a short-term approach to property investing, falls in home values are more likely to affect you. If you’re planning to renovate and sell or flip properties quickly, you should be careful about the costs involved. If the value of the property should fall, you could potentially make a loss, so talk with us about these costs before you get started.

As your mortgage broker, we’ll help you crunch the numbers and make informed decisions, then line you up with an investment loan that suits your individual needs. Property investment is still a reliable way to grow wealth - interest rates remain near historical lows and if needed, you can still access competitive interest-only loans with our help, so please get in touch today!

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. All loans are subject to lenders terms and conditions – fees, charges and eligibility criteria apply.

Source:
https://www.corelogic.com.au/resources/