The first thing that people want to know is how much the investment property is going to cost and how much will it return.
That should be the last question you ask.
The first question you should ask is how much is this investment property cash flow going to be each week?
If you’re wise and you plan to hold the investment property for the long term it’s the cost per week that will have the most impact on your lifestyle for that time period.
Once you know how much the investment property cash flow is going to be, there are a number of different tax deductions and refunds that could leave you out of pocket as little as a couple of dollars each week!
Here’s a hypothetical but realistic example of the investment property cash flow of a property costing $525, 000 leaving the owner just $3 out of pocket at the end of the week after taxes and rebates.
Note that a change in the deposit, as well as a different gross salary will equate to a significantly different investment property cash flow outcome. Contact us for an analysis of your own investment property cash flow!
Total Cost of investment property
In the Total Cost section, prices have been set as an assumption. Note the 40,000 deposit would change the outcome of the weekly cost significantly if you were to just contribute a deposit of say $15,000.
Also note the interest rate, set at 6% is significantly higher than the current interest rates. Great news for you!
Outgoings and Income
This is probably the most critical section to be aware of.
After calculating the annual interest ($29, 280) and adding rates, body corporate fees, property management and insurance, a property bought for $525,000 will cost around $664 dollars weekly.
Be aware that if you were to lose tenants for a period of time, you may be up for covering these costs.
As it is when investing in anything, it’s always wise to have enough savings to be able to cover these costs for a couple of months should something go wrong.
After including the income you will be making on your property (in this example we’ve set it at $500 rent weekly) you are left which a much nicer weekly cost of $164.
Allowable tax deductions
This is where it gets interesting.
There are a number of different tax rebates you can claim on an investment property including Building depreciation fixtures and fittings.
Building depreciation and fixtures and fittings tax deductions, in this example equate to $20,000, will lower the taxable income from $150, 000 to $129,000.
Tax refund calculations and summary of your investment property cash flow
After lowering the $46, 904 taxes to $38, 632 annually the individual will receive a tax rebate of $161.
On a $525, 000 property, costing $164 weekly to own ($664 weekly out goings plus $500 rent), a weekly tax rebate of $161 will leave the owner with a property costing them $3 each week.
This is a realistic example for many individuals who are fearful of taking the plunge into investing!
With a plan for your finances , investing in property may not be as scary, or expensive as you think!
Contact us for a realistic plan for your investment property cash flow.
Written by James Parnwell and Jordan Cox
The spring season is typically known to be the best time of the year to buy and sell property.
However, there is a growing opinion that spring, while being the best time to buy, may not be the best time to sell.
The reason is that spring usually sees a huge influx of properties on the market resulting in a possible oversupply.
This is great for people looking at building their investment portfolio as there is a huge influx of properties on the market.
There is a chance you may gain a bargain if somebody wants to sell quickly in the competitive market.
In saying that, with a competitive listing market, you will also find a competitive buying market.
Is Spring the best season to buy or sell property?
“If you’re looking to buy, buy in spring – but if you’re looking to sell, sell in winter,” says Sanderson of Smallacombe Sanderson Real Estate.
Wealthfarm wrote a great article on what kinds of property are best to buy and sell in different seasons.
In the article, Agent Peter O’Malley of Harris Partners in Balmain said he advises his clients to sell in winter to avoid the spring madness.
“(In spring) the supply swells overnight and buyers suddenly have a massive range of properties to choose from. And that causes hesitancy.”
“Winter is a great time to be a seller and spring is a good time to be a buyer,” he said.
The reason is that so many sellers put their properties on the market in spring.
The generalisation is that sellers have a negative attitude about Winter being a bad time to sell because the garden is dead and the weathers awful. The idea is that spring will see the garden flourish and the weather will entice more buyers.
The problem is that everybody has the same idea which causes mass bartering and long waiting periods if you’re wanting to sell quickly and at a great price.
On the flip side, strong competition can, sometimes force house prices up, and if your property is looking great, buyers may be willing to pay more for it.
What it comes down to, regardless of the season, is the supply and demand of property in your area.
Right now, Sydney is in a period of under-supply and the interest rates have just gone down so it is likely that this spring will produce a flourishing housing market.
For advice on how you can start your property portfolio this spring contact us!
Written by Jordan Cox and James Parnwell
Deciding whether to buy old or new is a challenge for investors.
Many assume that buying an older house and renovating will be the cheaper option, but this is not always the case.
Of course, there are advantages to older houses. They are often on bigger blocks of land, they have character and are in established neighbourhoods usually with wider roads and completed landscaping.
But there are also many advantages to buying new!
What many people aren’t aware of, or don’t take into consideration when buying new, is the government’s tax incentives.
Non-cash deductions and other returns can be claimed by people who intend to MAKE MONEY from their property.
“Research shows that 80% of Property Investors are failing to take full advantage of property depreciation and are missing out on thousands of dollars in their pockets,” says Director of BMT Tax Depreciation, Bradley Beer.
Property Investment: How to, asked our Property Consultant, David Ferguson, to explain what non-cash deductions are and why we can claim more on new property.
What are non-cash deductions?
“They’re based on depreciation, or rather a tax on the depreciation of the home. When the home is built, a valuer will report the overall value of the dwelling then, each year, based on the value, you will get a return to substitute the deprecitation of the home.”
How long do you receive the return for?
A new house will have a tax deductable period of 40 years based on the value of the building while a second-hand place will only have a tax-deductible time frame based on the remainder of the 40 years. You will also receive tax deductions on the fixtures and fittings for 8 years.
“These non-cash deductions mean that the chunk of depreciation tax you can claim each year is much bigger on a new place. It’s a great incentive for you to buy new!”
Is it worth it? How much am I paying in taxes just to see a small return?
“You don’t actually have to part with money to get the tax deduction.
The 40 years is the time frame that they deduct the tax each year, it’s a percentage of what the property was built for not on your own expenses so you are not actually handing money to the government, you are just getting a return on the money you invested into the value of the home.
It’s not a percentage of what the value of the property is now, it’s a percentage of what it was bought for earlier on so for 40 years after being built, it will continue to return based on it’s original value”.
Why is the non-cash deduction worth it for the Government?
“The government is really trying to get you to buy something which is new for two reasons. Firstly, by building new you are providing more accommodation for the desperate housing shortage we have, and secondly, they are wanting to ensure people are building an asset base to help fund their retirement phase”.
Why is the non-cash deduction worth it for you?
“The challenge is that if people step into an investment and they bought an old place say, in their 30’s, by the time they come into retirement the house is that much older and is probably going to need a decent amount of work. In some cases even a knock-down re-build.
On the other hand, if you bought a brand new place, you can depreciate that off that 40 year span of time. Because its depreciation is recognised at the time of construction, you receive a fairly sizeable chuck of the value over a much larger time span”.
Can I claim non-cash deductions on a newly renovated property?
“If you have done renovations, the non-cash deductions are based not on the construction of the original dwelling, but instead on the fixtures and fittings which you can claim back over an eight year span of time.
So it is only within those first eight years that the renovated property is actually servicing you with a cash advantage”.
“You don’t actually have to part with money to get the tax deduction,” David Ferguson.
Written by Jordan Cox and James Parnwell
Last week’s decision by the RBA to cut the official interest rate to 2.5 percent was helpful. However, reducing your mortgage takes dedication and smart decisions by you! Here are five ways to cut your mortgage!
A mortgage is the biggest financial transaction you will encounter in your lifetime but doesn’t have to take a lifetime to pay off!
Most home loans are planned by the banks and lenders to take between 25 to 30 years to pay off. This time period means that a huge amount of your repayments accumulate in interest and go straight into the pocket of your lender.
The ultimate goal for all homeowners is to be paying the PRINCIPAL of your loan, not the INTEREST.
Planning your repayments so that they chip away at the principal and don’t just pay they interest could help you to cut as many as five years off your mortgage.
Helpful ways to cut your mortgage
Pay your mortgage fortnightly instead of monthly
Planning your repayments this way means that you will be paying for 13 months a year rather than 12, effectively cutting a couple of years off your mortgage.
- Pay your salary into an offset account linked to your home loan
In these types of accounts, the balance of the savings account is offset against the amount owing on your mortgage. The interest on your mortgage is then calculated on the about owed minus the balance of the account resulting in lower calculated interest.
- Put your tax return straight onto your mortgage
You’ve lived the year without this money anyway but instead of treating yourself with material possessions, putting it straight into your loan will pay off with a greater reward in the future.
When interest rates drop, keep your repayments at the same level
Last week, the official interest rate dropped to 2.5%. Over the coming weeks, many lenders will see homeowners adjusting their repayments to save money NOW. However, by keeping your repayments the same, year’s can be cut off your mortgage and you save MORE in the long run by keeping that unnecessary interest, accumulated over years, in your pocket.
- Look stretching your budget to accommodate paying an extra 10% per month
“Paying an extra 10 percent in repayments each month towards a 25 year home loan, you will take 4.25 years off the loan regardless of the size of the loan.” Mark Bouris, executive chairman of Yellow Brick Road Wealth Management, told Rate City this week.
Written by Jordan Cox and James Prawner
The Reserve Bank of Australia (RBA) today announced a record low official interest rate cut, this is sure to please homeowners and property investors around the country.
The official decision to cut interest rates by 25 basis points, brought it to it’s lowest level since 1959 at 2.5%.
Many Economists predicted the interest rate cut; saying that recent sluggish trading with China and pressure on the Aussie dollar would be the primary influence.
However, Australian households saving more than 10% of their income as well as slower investing in the mining industry were the Reserve Bank’s greatest concerns leading toward them making the decision.
Since November 2011, the interest rate has nearly halved in a series of RBA decisions.
Official Interest Rate cut history since November 2011
- Nov 2011: 25 basis points to 4.5%
- Dec 2011: 25 basis points to 4.25%
- May 2012: 50 basis points to 3.75%
- Jun 2012: 25 basis points to 3.5%
- Oct 2012: 25 basis points to 3.25%
- Dec 2012: 25 basis points to 3.0%
- May 2013: 25 basis points to 2.75%
- Aug 2013: 25 basis points to 2.5%
Already, both Labor and the Coalition have used the interest rate cut to enhance their two-day-old campaigns. It is the property managers, and property investors that are likely to be the most pleased with the news.
The Reserve Bank hoped that banks would even further cut rates to increase economy spending, and this was the case for some.
Westpac passed on a 28 basis points cut to their home loan customers while the National Australia Bank, Commonwealth Bank and Bank of Queensland passed on an RBA equal 25 basis points.
ANZ will not announce its decision until Friday, in accordance with their monthly review.
What does the official interest rate cut mean for homeowners and investors?
For those looking to sell, an August rate cut is welcome as we come into the spring season, the busiest season for real estate.
For homeowners and property investors, the passed on cuts mean that a person who owes $300, 000 on their home will save $46 a month.
To save more, it may be worth asking your bank for a better deal off the back of today’s cut. If they are unwilling to budge, shop around.
Also, try to maintain the level of repayment that you are currently paying off. Looking at the cut as a way to pay off your mortgage sooner rather than saving the extra cash now is a more rewarding mindset in the long run.
While the cut is encouraging for many property investors to expand their portfolio or join the market for the first time, many financial professionals don’t believe it will make a huge difference.
Still, the encouragement is there with an expected spring increase in the market, it’s a great time to look into increasing your investments.
Drop us a line, we’ll get back to you as soon as possible with some helpful advice or opportunities.
Written by Jordan Cox and James Parnwell