Property Investment
Territory Loans
Suite 2/52 Hartley Street, Alice Springs | Phone (08) 8950 6333

Investing in property has always been considered an effective way to build wealth but it can also be easy to make costly mistakes.  Before starting there are some things you should think about.

  • Equity – how much equity do you have to put towards an investment purchase.   You need to look at how your lending is structured to best protect your home.  This is where Richard and Angelique can help.
  • Make sure you talk to your accountant or a specialist quantity surveyor regarding what sort of property will give you the most generous tax breaks.
  • Do your research on the area you plan to buy in.  Don’t just limit yourself to where you live.  It’s wise to diversify your portfolio.

If you are unsure of what your budget is make sure you give Angelique or Richard a call to discuss your options.

+ - Tips for investing in property

You should think over some points if you are considering becoming a Real Estate investor because it might help you to decide whether you could fail or succeed at investing in Real Estate.

The most important thing which you should think about when you are considering becoming a Real Estate investor is whether you can afford it. It is very expensive to invest in Real Estate and you need to understand your budget completely before you think of venturing into Real Estate investing. You might think of taking a Real Estate loan and then investing in Real Estate, but before you do that, make sure you can pay back the Real Estate loan. It is a huge commitment to invest in Real Estate and you have to be sure before you begin whether you can afford to do it.

First figure out exactly why you wish to invest in Real Estate. If you want to invest for your family, first check out the formalities and papers of the land such as the road connectivity, water, electricity and you should also find out how close the estate is to shops, schools, etc. Take a walk through the interiors of the house which you are thinking of investing in, to ensure that there are no repairs of any fault that may be necessary.

If you want to invest in property for the reason of selling it in the future, it is important that you do quite a bit of research on the estate concerned. Calculate how much appreciation the land is likely to go through and also see which areas will bring you the most amount of profit. All this is very necessary to ensure that you do not buy property which will not be in demand later on.

You should also make sure that you select the right Real Estate agent before you start thinking of investing in Real Estate. The Real Estate agent you choose should have sound market knowledge and should also be well aware of the current trend in the Real Estate market. Since the bargain you strike on the Real Estate investment, rests mostly on the knowledge of the market, the Real Estate agent has. Make sure they are dependable. You might end up with a bad bargain and consequent problems if you choose a bad Real Estate agent.

Most people who wish to invest in Real Estate make mistakes because they rush into it without taking everything into consideration. Do not let other parties or your Real Estate agent pressure you into investing too soon.

Buying a Real Estate property is just like buying a business. You should pay attention to the state of the market for the land you will wish to sell, the past history of that land, the nature of the area where your property is located, how much the property costs, and what kind of financing you will need.

+ - What is Negative Gearing?

Negative gearing occurs when the income from your investment is less than the interest paid in servicing the loan for that investment.

It is a process by which investors can offset losses incurred during the course of owning an income bearing investment against income from other sources.

Simply put, this means that if it costs you more to have an investment than you make on that investment, you can deduct this amount from your taxable income from other sources.

Typical deductions directly related to rental properties that can be claimed are:

  • Body Corporate fees
  • Borrowing expenses (for example, stamp duty and legal fees on mortgage)
  • Building depreciation (depending on construction)
  • Cleaning costs
  • Council Rates
  • Depreciation of fixtures and fittings (light fittings, carpets etc)
  • Insurance costs
  • Interest on loans (including interest prepaid up to 12 months in advance) and related bank charges
  • Land Tax
  • Pest control costs
  • Property Agent management fees
  • Repairs and maintenance) excluding improvements which are treated as capital and added to the cost base of the asset for capital gains tax purposes rather than being claimed as an immediate deduction)
  • Telephone, postage and stationary
  • Travelling expenses
  • Water rates

The calculation of depreciable items is very specialised and should always be carried out by a qualified professional.  Investors should always use an accountant who specialises in property investment to ensure all tax deductions are claimed.

When selecting your investment property, there are many factors to consider, one of them is new or existing.  There is a major advantage with new property.  That is, it allows you to maximise your tax advantages and to reduce the out of pocket costs to yourself to fund the property.

Speak with your accountant and other financial specialists about the implications of negative gearing before you purchase your investment property.

+ - Do you know exactly where you stand, financially?

Are you aware of how much money passes through your hands each year?…..No? Well, here’s an exercise that will show you exactly what your current financial situation is.

Now, what you’re about to do, is make a list of all the things you spend money on throughout the year, so you’ll need to go to your filing cabinet, or wherever it is you keep your important documents and find all the insurance papers, copies of bills etc. from the previous year.

Begin to make a list of all the items you spend money on but also make note of how frequently you pay them. Some things you may spend money on weekly, like groceries. Others may be fortnightly like mortgage repayments. You might pay your phone bill monthly and insurance premiums are generally yearly.

So, let’s get started. The obvious ones are going to be mortgage repayments or rent, as perhaps your biggest expense as well as any other loans you might have. A car loan for example. And then you might think about Council Rates and/or Body Corporate Fees. Utilities – electricity, water, phone and internet. Credit card payments. And then there’s the cost of feeding and clothing yourself and your family. What about vehicle registrations, maintenance and fuel? And the many different insurances necessary if you want to be prepared for the ‘just in case’ scenarios – Vehicle Insurance, Life Insurance, Income Protection Insurance, Private Health Insurance, Home and Contents Insurance.  Your list will be quite long but here are a few questions to ask yourself as you add to your list:

Do you:

  • Have an AANT Membership
  • Have Ambulance Cover
  • Pay School Fees
  • Make Personal Contributions to your Superannuation Fund
  • Have health issues that need regular check-ups or treatments, e.g. physio, podiatry, chiropractic, massage, dentistry
  • Need a repeat script for medication
  • Need a new set of contact lenses every 3 or 4 months?
  • Have a sporting club/gym membership/personal training sessions
  • Play sport which requires fees/uniforms
  • Subscribe to a magazine or Austar
  • Make regular donations to charity
  • Smoke/drink regularly
  • Go to the movies/hire movies often
  • Get together with friends regularly for a few drinks at the pub
  • Buy your lunch everyday
  • Go out for dinner often
  • Buy coffee daily
  • Have regular beauty treatments/haircuts/styles
  • Buy skincare/hair care products

And lastly, if you already put money aside regularly for savings, also add this to your list.

Do you have a Christmas Saver Account? Add this to the list as well.

So now that you’ve made a list of absolutely everything you spend money on, calculate each item down to how often you get paid – weekly, fortnightly or monthly. For example, if you get paid weekly but you pay your Home and Contents Insurance yearly, divide your premium by 52. (Fortnightly, divide by 26 and monthly, divide by 12) Then add all these individual figures together, to get a total figure for the amount of money needed each time you get paid, to cover your cost of living.

Then take this figure away from how much you earn – weekly, fortnightly or monthly. For those of you who do regular overtime, and therefore your income is different each pay period, use an average earnings figure. For example, add up four weeks (or fortnights/months) of income, then divide it by four to get an average. It’s better to slightly underestimate your income than over estimate and be short.

 Is that final figure positive or negative?

So what has this exercise shown you? Are you living outside of your means by spending more than you earn? Are there expenses you can reduce to bring your finances back in line? Do you need to create a budget/limit for various categories, like groceries and entertainment?

Has this exercise shown you that you don’t spend as much as you thought you did, and therefore, save a good portion of your income? If so, well done.

The bottom line is, if you’re goal is to own a home or investment property, to refinance or to apply for a loan for any purpose, the lending institution wants to see a pattern of regular savings, as well as no defaults on repayments of current loans or rental payments.

So ask yourself, what are my financial goals, and are my current financial habits going to get me there?

Richard Black (Credit Representative Number: 399502), Angelique Glasson (Credit Representative Number: 399501) and Kerry Thompson (Credit Representative Number: 486749)
are credit representatives of BLSSA Pty Ltd  ACN 117 651 760 (Australian Credit Licence Number: 391237)