When it comes to deciding what to do with your hard earned savings, the choice between investment opportunities can be difficult. There are a number of factors that might convince a potential investor to invest in one opportunity over another.
In particular, property as an investment is something that has been extremely profitable for a number of people. With this being said, in deciding whether or not you should buy property as an investment, you should consider various factors.
The Risk Involved in an Investment in Property
An important factor in determining which investment suits your needs is the amount of risk you are willing to take. While some investors are extreme risk takers and like to put more of their investment towards something volatile such as cryptocurrency, others are more risk averse, and prefer to accept a lower return on investment with known risks as opposed to unknown risks.
In comparison to other investment opportunities such as crypto and shares, investing in property is relatively safe. With this being said, it doesn’t mean that there is not the potential for you to lose your investment. When considering the 2020 pandemic in particular, risk surrounding property is somewhat higher than it would otherwise be.
Volatility due to the pandemic has meant that Australian housing prices have dropped, open houses and auctions have been halted, and rent reductions have occurred. This might mean that you are tempted to invest, in anticipation of future price rises, however the pandemic also means that future price changes are uncertain.
Being Prepared to Pay it Off
One of the biggest considerations to make in deciding to buy a property as an investment is in terms of whether you are prepared to make the necessary repayments. These will likely take a significant chunk out of your regular income, while other investments do not require the same commitment.
Rent money will obviously contribute to these repayments, however it won’t cover them entirely. Plus, in the event of a vacancy (which is likely to happen at some point), you’ll be covering these repayments entirely.
If you are planning on putting down a deposit and making repayments on a property, you’ll want to know how much you will be paying on the mortgage – calculate it here.
Investing in a Property to Maintain Your Lifestyle
In many situations, investing in a property is often an alternative to buying a first home. If this is the case, this decision will involve a lot of thought in itself. However, a significant factor that increases the appeal of investing in a property is that it can allow you to maintain your current lifestyle.
Purchasing a property in an area you want to live in might be out of your financial means – if you want to live in a trendy area with parks, amenities, cafes, shops and entertainment, the cost of the property will be higher. Investing in a property can solve this problem as you can choose to invest in an area that is cheaper or more rural, and then continue to rent in the area you want to live in.
Don’t Overlook Maintenance, Upkeep and Management Requirements
Another factor that makes buying an investment property an involved process is the maintenance and upkeep involved.
This starts with the tenants – choosing the right tenants can be a difficult process, and one that is often ongoing. The right tenants need to take care of the home properly, be a positive contribution to the neighbourhood (you don’t want to be receiving complaints from neighbors), and make payments in a timely manner. Finding the perfect tenant is easier said than done, and depending on how long they plan on living in your property, you might be screening the next occupants sooner than you would like.
Regardless of the tenants, there are going to be maintenance requirements. Even the perfect occupants will come into some sort of maintenance requirement, whether it is to do with plumbing, the kitchen, or the general structure and quality of the property. Having to determine whether this is the fault of the tenants or not is another problem in itself, but ultimately you may end up having to pay for these maintenance costs.
Finally, you have to deal with the management of the property in general- this means taking the time to deal with the processes involved in finding tenants, performing upkeep, keeping neighbours happy, and more. On the other hand, you could enlist the help of a professional property manager – this is a more costly but convenient option, and will depend on your timetable, income and personal preference.
If you do buy an investment property, be sure to get a depreciation schedule prepared.
Cashflow can become a major problem with yourproperty investment. For beginners, slow cashflow could prevent you from building your portfolio as quickly as you’d like. Happily, there are some tricks you can use to make improvements to your investment property cashflow.
So, you’ve got what you think is a great investment property. You’ve followed all theproperty investment basics, but your cashflow is tighter than you expected. At times, it can be a real struggle to pull together the money to pay for the property’s expenses.
This is a common problem, no matter how well you’ve followedinvestment property tips. Beginners, in particular, tend to struggle with getting their cashflow up to the level they’d hoped for.
All is not lost. There are a few tips you can follow to improve your investment property cashflow.
Tip #1 – Raise the Rent
It may seem like a simple tip, but it’s one that many beginners don’t think about when they’re dealing with cashflow issues. Raising the rent on your property can offer a short-term solution while you look at the bigger problems.
Of course, you can’t do this every time you face a cashflow issue. Constant rent increases will drive your tenants away. However, it becomes an option if you haven’t re-examined your rents for some time. In such cases, you may be charging less than other investors in the area.
You must also remember your tenancy agreement, along with the laws of your state. Either may prevent you from raising your rents. That’s why many investors wait until the end of a tenant’s lease period before increasing the rent. With some luck, you can secure the tenant on a longer fixed lease at the new rate.
Tip #2 – Take a Look at Your Home Loan
Do you still have the same home loan you applied for when you bought yourinvestment property? Australia has dozens of lenders who offer hundreds of mortgage products between them. Take advantage of that fact to secure a better home loan.
Work with a mortgage broker to find out what other products are out there. You may find that switching your loan gives you access to lower interest rates and some useful new features.
Alternatively, you could use the information you find as leverage against your current lender. Most lenders want to keep reliable clients. If you’ve made on-time repayments, you may find that your existing lender offers a better deal when you threaten to leave.
Those are some long-term options. You could also switch your home loan to interest-only periods for a short while. This will help you to deal with more immediate cashflow concerns.
Tip #3 – Look at Other Income Streams
Theproperty investment basics don’t always cover the other income streams your property may have to offer.
Take some time to think about how you could use your property to generate more than the rental income.
For example, you could lease the side of the building as advertising space if your property is near a busy road. Alternatively, you could lease out any unused parking spaces. Each offers a little extra income beyond your property’s rental income. Remember, that every little bit can help when you have cashflow problems.
Tip #4 – Examine Your Outgoings
Reducing costs is a crucial part ofproperty investment. For beginners, this means taking a detailed look at your figures. You may find that you’re paying too much for your insurance. Or, you could negotiate a better deal with your property managers.
Many who encounter cashflow issues find that they’re paying too much for various services. You may also be paying for things you don’t need. For example, you could handle some basic maintenance issues yourself, rather than hiring somebody to do it for you.
Again, this frees up small amounts of cash. Nevertheless, you’ll improve your cashflow with each positive change to your outgoings.
Tip #5 – Get on Top of Depreciation
It’s amazing to think about how many new investors don’t think aboutrental property depreciation rates. They don’t investigate the claims they could make on their assets. Instead, they keep plugging away without a depreciation report. Alternatively, they assume their accountants have factored depreciation into their tax returns.
You need a depreciation schedule. If you don’t have one, you’re cheating yourself out of thousands of dollars.
Hire a quality Quantity Surveyor to draft a full depreciation schedule. Your surveyor will ensure you claim the maximum amount over the lifetime of each asset. Furthermore, you’ll learn more about tax compliance in your state.
Your Next Step
You’ll make both short and long-term improvements to your cashflow if you follow these tips. You can handle the first four with the help of an accountant and mortgage broker. However, you need additional help to create a depreciation schedule.
Washington Brown has the answer. Speak to one of our Quantity Surveyors today to get a quote.
Six Things To Know Before Buying an Investment Property:
You may be thinking about buying an investment property. Australia has a strong property market, which attracts a lot of buyers. However, there are some property investment basics to keep in mind.
The attractive Australian house market has many people investing in property. For beginners, this means learning the property investment basics that will lead them to success. After all, property isn’t a sure thing. It may offer more security than investing in stocks, but you have to put the work in to generate an income.
So what do you need to learn before you invest in a property? Here are some things you must know about property investment for beginners.
Issues #1 –How Much You Can Borrow
You need to know how much you have to spend before looking for an investment property. If you don’t, you run the risk of finding the perfect property, only to discover that you can’t afford it.
You can get a general idea for how much money you need when buying an investment property.
Calculator websites allow you to enter some figures to produce a rough estimate. They’ll ask about your income, in addition to any expenses you currently incur. These include everything from your debts, through to the dog food you buy each week.
However, you won’t know for certain until you speak to a lender. Most importantly, you must find out how much of the property value you can borrow. This will tell you how much money you must raise for your deposit.
Issue #2 – Your Investment Plan
Most people approach property investment with a simple end goal. They want to make enough money from their property to quit their jobs. However, many don’t really understand what this means. Enough money for one person may not be enough for another.
So, you need to have a plan in place before you start investing. Work out how much income you need your investments to generate before you can live off the proceeds.
This is your real goal. A vague notion of early retirement won’t keep you focused. You need to know exactly what you’re shooting toward before you invest your money.
Issue #3 – The Different Types of Gearing
You may have heard of gearing, without really understanding the concept. You need to learn what gearing is to create a strong investment plan.
There are three types of gearing: positive, negative, and neutral. Positive gearing means that your property generates enough income to cover its expenses, with money left over. You have to pay tax on your income when you have a positively geared property.
Negative gearing means your property doesn’t generate enough money to cover its costs. This may sound like a bad thing. However, you can use negative gearing to your advantage. Many investors offset the losses their properties make against other income sources, such as their salaries.
As the name suggests, neutral gearing means the income covers the costs. You don’t make any profit, but you don’t lose money either.
Issue #4 – The Choice Between City and Rural
There’s a huge difference between city and rural properties. City properties give you access to more people, which makes it easier to fill vacancies. However, rural properties allow you to charge higher rents. You can also buy rural properties for less money.
So, which do you choose? It all comes down to what you want to achieve. City properties tend to enjoy higher capital growth than rural properties. However, it’s easier to positively gear a rural property.
You need to do your research before creating any property investment strategies. Australia offers all sorts of opportunities. Consider area population, local economies, as well as demand when choosing where to buy your property.
Issue #5 – Who Provides Legal Advice?
You’ll have a choice between conveyancers and solicitors when looking for legal advice. Both work in law, but they’re slightly different.
Conveyancers focus solely on property law. They’re highly specialised, but won’t be able to help you with any issues that aren’t directly related to the property. Solicitors offer well-rounded knowledge on a range of issues. However, they also cost more money.
Your choice depends on the property. If you anticipate a lot of legal issues, hire a solicitor. This usually costs between $2,000 and $3,000.
A conveyancer costs approximately $1,000. Use these professionals if you anticipate a simple transaction.
Issue #6 – Your Exit Strategy
You should achieve success with proper planning. However, that doesn’t mean that you don’t need an exit strategy.
Your exit strategy determines how you’ll generate a profit from your investment. For example, you could decide to sell after a set amount of years to take advantage of capital gains.
Alternatively, your exit plan may involve benefitting from the rental yield until you retire. Upon retirement, you could move into the property, rather than sell it.
The main point is that you need to know how you’ll exit the investment. If you don’t, you can’t take full advantage of the property during your ownership period.
The Final Word
Investing in property could help you to enjoy a greater level of financial comfort. However, poor preparation will lead to mistakes and potential losses. You need to know how to maximise your investment before you commit your money to a property.
Washington Brown can help you with that. Our Quantity Surveyors can help you to calculate how much you can claim in depreciation. Get in touch today to find out more.
Friends Dancing Limbo at Beach
When trying to figure out how to invest in property with little money, many new investors look toward discounted properties. However, there are some risks you must keep in mind.
Foreclosure is an ever-present risk for Australian homeowners. Failure to meet your mortgage repayments could result in your lender taking possession of your property. It’s an issue that affects thousands of people every year. In Victoria alone, almost 1,000 people had their homes repossessed between 2014 and 2015.
Foreclosed, or discounted, properties present an opportunity for property investment for beginners. In fact, many make discounted homes their first investment property in Australia.
However, buying a foreclosed home is not always simple. Here are six things you must watch out for when purchasing a discounted property.
Issue #1 – Your Own Finances
When a lender forecloses on a property, they take ownership of it. As a result, you buy discounted properties directly from the previous owner’s lender.
What does this mean for you? For one, you can expect the lender to want to get the transaction over with as quickly as possible. You’ll have to deal with a shorter settlement period, and the lender will want to see that you have your finances in order. Furthermore, having pre-approval on a home loan isn’t always enough. You need to have more concrete evidence that you have the money to spend.
Make sure your finances are in order before trying to buy a discounted investment property in Australia.
Issue #2 –The Quick Settlement
As mentioned, you’ll deal with a quick settlement period when buying a discounted investment property in Australia. This is because the lender needs to get the property into somebody else’s hands. The longer that takes, the more time the lender has to wait before recouping their costs.
Prepare yourself for this ahead of time. Make sure you have a solicitor in place who will prioritise the transaction’s paperwork for you. Furthermore, work closely with your own lender to ensure nothing can go wrong with your mortgage application.
Failure to meet the conditions of the settlement could lead to you paying penalty fees. Suddenly, your discounted property costs more than you expected.
Issue #3 – The Need to Make Repairs
Foreclosures are not pleasant situations. The previous owners will have vacated the property quickly. They will also have been going through some financial difficulties. As a result, maintaining the property would not have been a priority.
Expect to make repairs to several fixtures and fittings. It’s also likely that you’ll have to clean up before you can start using the house as an investment property in Australia. Worst case scenario, you’ll have to renovate extensively.
Factor this into your budgeting before you buy the property. You won’t be able to use your discounted property to generate an income if it’s in a state of disrepair.
Issue #4 – The Effects of Unruly Previous Owners
Those undergoing foreclosure will feel a lot of stress. After all, they’re facing financial issues and the prospect of losing their home.
In some cases, the previous owner may have lashed out against the property itself. There are reports of investors buying discounted properties, only to find extensive damage. You become responsible for fixing this damage as soon as you take ownership of the property.
You can avoid this problem if you arrange a building inspection. Have an inspector ready to go as soon as you make contact with the lender who owns the property. This ensures that you find any deal-breaking issues before the transaction reaches settlement.
Issue #5 – The Location
Buying a discounted property doesn’t mean you should forget about the location. Checking the property’s location is one of the property investment basics.
Take some time to visit the area, so you can get a feel for the neighbourhood. Also, remember that the pictures you see aren’t fully representative of the property. The seller uses those images to make the property look as attractive as possible.
As a result, you need to visit the property yourself at least once before making your offer. If the location isn’t suitable, no discount is worth the risk.
Issue #6 – Your Research
You may forget to do your research in your rush to buy a discounted property. The faster settlement doesn’t help with this. You have a lot of pressure on your shoulders to get the deal done quickly.
Some investors use this as an excuse to research less thoroughly. Don’t fall into that trap. You need to know if the property has the potential to contribute to your portfolio.
Examine the usual data. Check to see how local property prices have fluctuated over the last few years. Have a plan in place for what you’ll do with the property once you have it. It’s also worth checking tenant demand, assuming you wish to use the property to generate a rental income.
The Final Word
Buying discounted properties could help you to make a lot of money as an investor. However, you shouldn’t go into any deal without checking all the issues.
You also need to consider how you’ll claim deductions on your new property. Washington Brown can help, so contact us today to find out how much you can claim.
Many see granny flats as an easy property investment. For beginners, they offer the opportunity to start investing, without spending too much money. As with any investment property, you must remember to claim for the depreciation of your assets.
Tons of people like the idea of buying an investment property. Australia offers plenty of opportunities, but many struggle to get over the initial financial barrier.
You may find yourself asking how to invest in property with little money. A granny flat may be the answer. They cost less than most other types of investment property. Plus, you still get to claim for the depreciation of the property’s assets.
So, what are granny flats, and how can you claim for their depreciation? This article will help you to answer those questions.
What is a Granny Flat?
You can think of a granny flat as a secondary home on your property. They’re usually self-contained extensions that come with a lot of the features you would expect in an apartment.
The difference is that the granny flat is on your land. As a result, you have far more control over it.
Most people build their granny flats behind their properties. After all, the back yard is a perfect space to extend into. The flat itself will usually contain the following:
- One bedroom
- A bathroom
- A general living space
This makes them ideal for all sorts of tenants. The name “granny flat” should tell you that they’re perfect for elderly tenants. However, that’s not the only use for this type of investment property.
Australia is full of young people who view granny flats as an affordable way of achieving their independence. Your own children may find the idea of moving into a granny flat more appealing than staying at home.
They’re also a cheap way to enter the investment sector. On average, a granny flat costs about $120,000 to build. In return, you could enjoy a yield of up to 15% on the property.
If you have recently purchased or constructed a granny flat, make sure your claiming the deductions you’re entitled to! Request your free quote for a fully comprehensive, ATO-compliant depreciation schedule.
Do I Face Construction Restrictions?
You do, and they depend on the state you build the granny flat in. Each has its own rules with regard to size. For example, a granny flat cannot exceed 60 metres squared in New South Wales. However, you can build up to 90 metres squared in the Australian Capital Territory.
Exceeding these limitations changes the status of the granny flat. This could have an effect on how you claim tax deductions. Australia has several states, so you need to get informed before you start building.
Claiming Depreciation on Granny Flats
There’s one key question you must ask when buying an investment property: what can I claim? Granny flats are no different. Just because you’ve built the property on your land, doesn’t mean that you can’t claim depreciation.
As a secondary dwelling, a granny flat must produce an income before you can claim depreciation. Assuming that’s the case, you can claim depreciation for capital works. These include the wear and tear the structure undergoes during its lifetime.
You can also claim for plant & equipment depreciation. In a typical granny flat, this means you can claim depreciation for the following assets:
- The hot water system
- Alarm systems
- Ceiling fans
- Air conditioning units
- Curtains and blinds for the windows
- A range of kitchen appliances and assets
- The bathroom’s freestanding assets
You can also claim depreciation on the areas the granny flat shares with your home. For example, you could claim for a pool or a patio, assuming the tenant uses these assets.
As you can see, that covers a lot of ground. In fact, research suggests that you could claim over $5,000 in depreciation on a granny flat for the first year of ownership. This figure increases to almost $24,000 over the first five years. That’s about one-fifth of the value of the average granny flat, in just five years.
The Final Word
As you can see, granny flats offer high yields and plenty of opportunities to claim for depreciation. That’s why they’re considered one of the best options when it comes to property investment for beginners. Manage the flat correctly, and it could generate thousands of dollars in income in a short time.
However, you need help to create a full depreciation schedule. Without the help of a Quantity Surveyor, you may end up failing to claim for the full depreciation of your assets. Contact Washington Brown today to get a quote for a granny flat depreciation schedule.