» Buying Investment Property

Buying your first home vs investment property

BMT team — Tue, 01 Mar 2022 02:57:38 +0000

You’ve saved enough for a home loan deposit, but not enough to buy a property in your dream suburb. You’re now faced with the choice between continuing to save so you can live where you want or buying an affordable property in a less desirable area to get a foot on the property ladder. So, what do you do? This is a common problem facing many Australians who have yet to enter the property market. With house prices having risen at astronomical rates, saving enough for a minimum home loan deposit in many capital cities has become out of reach for many. Fortunately, there is a strategy that can help first home buyers to get a leg up on the property ladder. Buying an investment property first Rentvesting is becoming an increasingly popular home-owning strategy. Rentvesting is when individuals purchase an investment property in an area they can afford, whilst renting a place where they want to live but can’t afford to buy. As a first home buyer you may not be in the financial position to purchase a home in the area you necessarily want to live in. For instance, you currently rent an apartment in Sydney CBD, work in the city and your social life consists of living in the city, but you cannot afford to purchase a home in that area. You could continue to save for a deposit, hoping one day you save enough. Although, this may take many years or even become impossible due to the constant surge of home prices. Alternatively, you could rentvest. This option gives you the opportunity to get into the property market whilst keeping your lifestyle. Let’s say you saved enough for a deposit in a developing regional area with expanding infrastructure and a growing population. Areas like this can be a great investment and bring valuable equity as the house value has potential to increase at a consistent growth rate. After equity has grown, this asset will assist by strengthening future home loan applications and provide security for banks. In turn, this means you could afford a home in your dream suburb a lot sooner than it would have taken to save for the deposit. Benefits of rentvesting include being able to enter the property market sooner, having the flexibility to live in a more enticing area, wealth and equity buildup, increase of cash flow, and possibly, cheaper rental payments than a mortgage. Other advantages include tax deductions like negative gearing and depreciation. By depreciating investment properties, owners can reduce their taxable income resulting less tax to pay. Similarly, negative gearing is when the cost of owning an investment property outweighs the annual income it generates, resulting in a lowered taxable income. Alongside the benefits, there are some possible downsides to this strategy. These include the instability of being a renter, ongoing rental payments, capital gains tax (CGT) incurred if you decide to sell, loss of government First Home Owner grants and higher interest rates that come with property investment home loans. It’s important to highlight that rentvesting may not be an option for individuals seeking First Home Owner Grants. Homeowners must live in their newly purchased home within twelve months for a minimum of six consecutive months before it can be used as an investment property. Best of both worlds It’s possible to have a bit of both worlds with the option of renting out a room or area of a home. Live-in landlords are becoming more common as the need for single room rentals are increasing. This is attractive for students or individuals and may be more practical in cities or areas with local universities. When renting out a room or area of the home you are entitled to claim a portion of living expenses including internet, water and electricity rates, council rates, interest on your mortgage, body corporate fees and property depreciation as tax deductions. It’s always best to speak to a trusted accountant so they can assess your financial position. It’s also important to get a tax depreciation schedule prepared. BMT’s specialised quantity surveyors will ensure all depreciation claims are maximised. And don’t forget, the cost of the schedule is fully tax deductible. For more information on how to claim depreciation on investment properties, contact BMT Tax Depreciation on 1300 728 726 or Request a Quote.

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Where to buy an investment property in 2020

BMT team — Thu, 13 Feb 2020 03:01:47 +0000

Your 2020 goal may be to take your first step into the property market or to grow your investment portfolio. Location is always a key factor to consider and we have provided a state-by-state overview to help you decide where to buy an investment property. New South Wales Australian Capital Territory Victoria Tasmania South Australia Western Australia Northern Territory Queensland New South Wales The most populated state in Australia provides many opportunities for investors. Sydney alone has recorded a 23.9 per cent change in dwelling values in the past five years and median values are over $850,000. Although dwelling and median values are on the rise in Sydney, gross rental yields are currently trending the lowest out of the major cities. Sydney is always high on the list of property discussions, however investors shouldn’t rule out entering the regional New South Wales market. With increasing dwelling values, and positive population projections the smaller cities such as Newcastle and Penrith are proving to be smart choices. Australian Capital Territory As one of the most consistent property markets in the country, Canberra is set to continue to be steady in 2020. Dwelling values are at record heights and stamp duty deductions for investors make the Capital an appealing choice. Victoria Despite the slight downturn that Melbourne experienced in 2019, things are starting to look on the up for 2020. Stabilised auction clearance rates, high rental yields and strong competition are helping to create a popular market. Regional Victoria dwelling values are at their peak and investors shouldn’t rule out searching for a property outside of the CBD in popular areas such as Wyndham and Greater Geelong. Tasmania Often overlooked, our smallest state is boasting a strong property market for investors. Dwelling values are at their peak and Hobart is experiencing the most competitive rental market across the country, with low vacancy rates, high demand and rents up 5.8 per cent over the past 12 months. To add further to Tasmania’s strong case as an investor’s choice, sub-regions such as Launceston and North East Tasmania are currently recording the highest annual change of dwelling values. South Australia High rental yields and lower property prices makes South Australia a popular choice among investors. Adelaide dwelling values are at their peak with median values sitting at over $430,000. Coming in at second place to Hobart, Adelaide is continuing its trend of producing a tight and competitive rental market. Western Australia Slowly but surely, Perth dwelling values are improving following their slump lasting over five years. While dwelling values are yet to reach their 2014 peak, Perth rental yields are trending positively by 1.9 per cent. On the outskirts of the capital, the City of Swan is also making its mark with one of the highest projections of population growth across the country. For investors looking to buy in regional Western Australia, it’s important to be aware that the southern region is one of the lowest performing housing markets in Australia due to persistent drought and overall underperforming economic conditions. Northern Territory Like Perth, Darwin dwelling values have been consistently falling over the past years. While they aren’t out of the woods yet, the good news for investors is that Darwin recorded its first subtle rise of 0.1 per cent in January 2020. Although Darwin’s housing market conditions are weak overall, the city features high rental yields as housing values are falling at a higher percentage than rental rates. Queensland Investors searching for a property in Queensland commonly look to the capital and major cities. Median values in Brisbane are almost at the $500,000 mark, while sub-regions such as the Gold Coast and Sunshine Coast are recording positive dwelling value increases and strong projections for population growth. The broader outback regions of Queensland continue to be one of the weakest housing markets due to persistent drought and weak economic conditions. Most properties across Australia, both new and old, have depreciation deductions available. BMT found residential property investors an average of almost $9,000 in first full financial year deductions last financial year, so it’s worth speaking with a specialist Quantity Surveyor to help inform your investment decisions. Contact our specialist team on 1300 728 726 or Request A Quote.

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What makes a better investment property new or old?

BMT team — Thu, 06 Dec 2018 23:06:36 +0000

Contents: Pros of buying a brand new property New is not always better, a few cons to consider before purchasing There are benefits to consider if buying an older property Always weigh up the risks with older property too Pros of buying a brand new property Depreciation benefits – the newer the property the higher the amount of depreciation available to you. You can deduct 2.5 per cent on the structure of the property itself over forty years, which can lead to a significant tax deduction. Appliances such as air conditioners and dishwashers generally have a higher rate of depreciation. New properties are not affected by recent changes to depreciation legislation passed in November 2017. Tenant appeal– typically, new dwellings are perceived to be higher quality. This has greater appeal for tenants looking for modern appliances and technologies like reverse cycle or ducted air conditioning, who are prepared to pay higher rent. The ability to attract high quality tenants could mean that you lower the risk of untenanted periods for your investment property. Protection– builders of new properties in Australia are required to take out home warranty insurance which protects you in the event of a major building defect. Low maintenance – when you buy a new property you will benefit from the convenience of not having to spend money on repairs or maintenance particularly in the earlier years of ownership. Security – most items in a new property are covered by a builder’s warranty which means you can minimise your ongoing costs. Government incentives – there are stamp duty concessions and grants available for first home owner grants which could significantly reduce your upfront costs. New is not always better, a few cons to consider before purchasing Less affordable – depending on the location and property type, new dwellings are generally more expensive than established dwellings which could mean that you struggle to meet your loan repayments. In addition, new properties often have high strata fees associated with maintaining communal facilities such as gyms and pools which could harm your cash flow. Limited value-adding potential – there is little opportunity to add value to the property once you’ve purchased it so it may take longer to achieve capital growth. Greater market risk – new properties are often the first to see price declines when the market softens, while established properties will either maintain their price value or experience a minimal adjustment. There are benefits to consider if buying an older property Renovation potential – a major advantage of buying an established property is that you can renovate and add value to the property which can boost your equity. These renovations have potential to be tax deductible. If you are buying the property as an investment, it is worth consulting with a Quantity Surveyor before you begin your renovation to establish what depreciation deductions you will be able to claim. Affordability – an established property is generally more affordable than a new property which means that you may be at less risk of facing mortgage stress levels. Property history – historical data about the property will give you an idea of how the property value has changed over time which can help you make an informed decision. Negotiating power – when you buy an established property, you can negotiate a fair price. Vendors of established properties often have a motivation to sell relatively quickly so you can use this to your advantage to negotiate a bargain. Capital growth – generally, a well-bought established property will outperform the averages over the long term and experience high capital appreciation which will benefit your long-term cash flow. Always weigh up the risks with older property too Maintenance – an older property may need upgrades and repairs due to wear and tear on the property over time. Not only could this eat into your profit, if a major renovation needs to take place, this could mean that you risk loss of rental income if tenants need to temporarily vacate. Lower rental return – if the property is older and in need of repair, the rental return will typically be lower compared to a newer property. Less appeal – established properties typically have less appeal than new properties as they may have an outdated design. Lower depreciation deductions – following legislation changes passed in November 2017, you can’t claim depreciation for previously used plant and equipment found in second-hand properties.Whether you’re buying an old or new property, try not to be seduced by up-front savings or emotional attachments. It’s more about selecting a low maintenance property in the right location that has no hidden surprises and potential for future capital growth and increasing rental yields.

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Property market update – October 2018

BMT team — Tue, 30 Oct 2018 22:20:12 +0000

Property values The Australian property market has continued to weaken, with national housing prices falling half a per cent in September. This fall in market values has been consistent over the past twelve months according to the latest CoreLogic Home Value Index. Sydney house values have dropped 6.1 per cent over the past twelve months and Melbourne values are sitting 3.4 per cent lower. Not only are these amongst the largest annual falls across the Australian capital cities, but considering Sydney and Melbourne include approximately 60 per cent of the national value of housing, the shaky conditions in these cities continue to have a substantial impaction the overall national housing market. As national housing market conditions have slowed down, and credit seems to be less available, buyer numbers have thinned out. CoreLogic estimates of settled sales are down 10 per cent year on year nationally, whilst previously strong markets such as Sydney and Melbourne have seen the number of settled sales fall more substantially, down 19 per cent and 16 per cent respectively. There are more positive signs elsewhere across the country, with Brisbane, Adelaide, Hobart and Canberra showing signs that property prices are indeed increasing. With a change of Government possible in the near future, and Labor intending to change negative gearing policy, this could have a huge impact on pricing, particularly in Melbourne and Sydney. Residential listings New listings have commenced their anticipated seasonal rise thanks to the onset of spring and warmer weather leading into summer. However, the number of freshly advertised properties remains well below that of previous years. Despite the decrease in new listings, the total number of properties available for sale has climbed 9.5 per cent compared to one year ago across the combined capital cities. This wave in total listing numbers is highest in Sydney and Melbourne, where levels are now 22 per cent and 17 per cent higher than twelve months ago. A study conducted by analyst and buyer’s agency firm Propertyology revealed that Sydney and Melbourne markets continue to see housing oversupply, which is likely to cause slowdown in areas located in two of the major capitals. The oversupply has been driven by dropping property prices, increasing vacancy rates and easing rents. Vacancy and rental rates With capital city property values falling, rents continued to rise, despite gross rental yields gradually recovering from recent record lows. Whilst there has been a fall in properties available for rent, the most recent figures compiled by CoreLogic show the national gross rental yield at 3.73 per cent, lower than the decade average of 4.27 per cent. Nationally it is 4.2 per cent for apartments, and 3.6 per cent for houses. Recent figures from SQM Research indicate that the national vacancy rate remained steady at 2.1 per cent. Half of the capital cities saw their vacancy rates shrink by 0.1 of a percentage point, with the tightest being Hobart at 0.4 of a percentage point, followed by Canberra at 0.6 of a percentage point, Adelaide at 1.1 per cent and Perth at 3.6 per cent. Similarly, the capital city average asking rent for houses remained steady at $552 a week, but unit rents declined by 0.7 of a percentage point to $437 a week. The major growth standouts for rents were Adelaide and Perth, which saw both asking rents for houses and units rise. Adelaide’s asking rent rose by 0.5 of a percentage point for houses to $390 a week and by 0.3 of a percentage point for units to $300 a week. Meanwhile, Perth saw a more subdued rise of 0.3 of a percentage point for houses to $425 a week and by 0.1 of a percentage point for units at $320 a week. On the flipside, the capital cities that saw asking rents for both houses and units decline were Melbourne, which saw declines of 0.5 of a percentage point and 0.7 of a percentage point to $525 a week and $405 a week respectively, and Darwin, which saw declines of 2.0 per cent to $505 a week and $400 a week respectively. Auction clearance rates According to CoreLogic, the combined capital city auction clearance rates numbers have steadied over recent weeks, but they remain well below levels from a year ago. Across Melbourne, auction volumes rose. However, final figures saw the clearance rate drop to 45.7 per cent. This was not only lower week-on-week, but it was also the lowest figure since June 2012 (38.6 per cent). Over the week prior, fewer Melbourne homes were taken to market with a final clearance rate of 50.4 per cent. In Sydney, the final auction clearance rate fell slightly to 44.6 per cent last week, from 45.1 per cent the previous week. Across the smaller auction markets, clearance rates improved in Adelaide, Brisbane and Perth, while Canberra’s came in lower week-on-week. Building approvals Both house and unit building approvals are currently trending lower nationally. However, they do remain well above previous average levels. Finance and interest rates Mortgage demand is trending lower, largely due to an extensive decrease in investment lending. Previous housing cycles have generally been prompted by changes in interest rates, the current slowdown has been deeply influenced by changes in credit availability. Mortgage rates creeped higher in September, with the average discounted rate for owner occupiers rising from 4.50 per cent to 4.55 per cent. Some good news is that first home buyers are back, with finance approvals to this group well up compared to the same time last year. While a relatively small buyer group, the combination of renewed first home buyer Government incentives, fewer investors and calmer prices has been a positive. This is particularly the case in Sydney where there are the greatest number of first home buyer finance approvals in almost a decade.

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The pros and cons of commercial property investment

BMT team — Tue, 18 Jul 2017 05:07:21 +0000

When people think about investing in property, residential real estate is often what comes to mind. But commercial property investment is always worth considering, whether you’re looking to diversify your portfolio, create an alternative avenue of cash flow or simply want to take advantage of the benefits of this type of asset. Below we outline some of the key considerations when investing in commercial property as well as the advantages and disadvantages of this type of investment. Contents: Commercial investment considerations Advantages Disadvantages Commercial investment considerations There are three commercial property sectors – retail, office and industrial. Each sector has its own risks, rewards, trends and considerations and these must carefully be weighed up before deciding which will be the best choice. Furthermore, there are a multitude of different industries you can be involved in within these sectors, from retail to aged care or warehousing, for example. Each industry will offer different yields and returns for the owner, depending on the performance of that industry. Investors should carefully consider this performance as well as future forecasts when deciding what industry they’d like to be involved in. If you’re going to invest in commercial property, you need to understand how this particular market works, how it differs from the residential market and what its drivers are. In addition to population growth, which is the main driver in the residential market, commercial property is also driven by a number of wider economic factors. The economy and interest rates – This will impact on consumer spending, demand for services and business performance as well as the landlord’s ability to pay back a loan. Demographical trends and patterns can affect commercial property and demand. For instance, with the rise of baby boomers making a sea change, there is now more demand for healthcare services in areas traditionally considered holiday locations. As further examples, our aging population has driven the demand for more aged care facilities while the growing need for childcare services has created more competition and demand for this type of property in Australia. Changing consumer habits, often going hand in hand with evolving technologies, have an impact on the commercial property market. Take for instance the rise in online shopping in the past decade which has created demand for more industrial warehouse properties. Financial considerations – obtaining finance for a commercial property differs from getting a residential mortgage and can often be more complex. For instance, pricing may not be set in stone and the terms can sometimes be negotiated. Individuals should consider whether a commercial finance structure will suit them and their investment goals. It’s different in nature to residential investing and these differences should be understood by investors. For instance in commercial property, tenants are able to make alterations, such as a new fit out in a hairdressing salon. It also differs in terms of who pays what bills. This is discussed further below. Advantages There is the potential for greater return on investment. In residential investing, yields are often in the 3-5 per cent range while it’s not uncommon to get yields of 6-12 per cent for a commercial property. Leases tend be longer – three, five or ten year leases are quite common in commercial property. Ideally, this means the owner won’t have to deal with the costs associated with bringing in new tenants so frequently. It may be a way to get into the property market sooner if a would-be investor is struggling to save up for a traditional home deposit. For instance, they may choose to get their foot on the property ladder by purchasing a commercial car park that costs less than a house but still offers solid returns and allows them to build some equity. It allows investors to take advantage of booming industries and changing societal trends. Although there may be greater risk, the rewards can also be superior. Disadvantages While commercial leases typically last longer than residential leases, it usually takes longer to find a tenant when the property becomes vacant. Investors need to consider whether they’ll be able to cover the costs of holding the property while it is untenanted. Commercial real estate is often more sensitive to economic conditions. The commercial property market can be volatile and is often less predictable than residential markets. It can be more complex to obtain finance for a commercial property. For instance, certain types of commercial property may be considered higher risk to the lender or prove more difficult for them to value. This can mean that financing may be trickier than for residential property in some instances. Due to financing requirements, the investor may need a larger deposit to secure approval for a mortgage.

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Seven steps to buying an investment property

Chan Naylor Team — Mon, 23 Mar 2015 03:17:02 +0000

Buying an investment property is a challenging process. What do I do, where do I start, who do I speak to and what are the sequence of events? In order to assist you through this important process, I have provided my ‘seven steps to buying an investment property.’ This is the checklist I use when purchasing a property. Review your personal cash flow position and budgets to determine affordability You must be able to afford the cash flow impact on owning an investment property. Work out how much disposable income you have after each pay packet taking into consideration your daily living costs and do not over commit. Work out how much in savings you have already or will need to go towards a deposit. Generally a bank will require 20% cash down and they will then lend you the balance. Also allow for 5% of the purchase price to cover costs like stamp duty and legal fees. What is very important, but often overlooked, is that you must be able to handle the emotional side of property ownership. Yes you will have times when the market has dropped or stagnated so there will be no capital growth and yes you will have problems with tenants or vacancy periods. Be prepared for this emotionally and accept that this is part and parcel with property investing and remember that this is a long term investment. Contact a Lender or Broker to determine how much you can borrow. Get pre-approval for the loan and understand your monthly payments and interest rates, both fixed versus variable Once you have worked out step one, you should contact a Lender or Broker to find out (based on your income, commitments and deposit) how much you could borrow and at what interest rate. Get pre-approval for an amount so you can go searching for a property with certainty based on how much you can spend. This will also dictate where you can purchase and what type of property you can purchase, e.g. a house or apartment, new or old. You should also consider how you will structure your loan. Should you go for interest only or principle and interest? Should you lock the rates in on a fixed term, leave it variable or go half/half? The answers to these questions may depend on the economic environment at the time and as always, seek counsel from the professionals before making a commitment. Contact your Accountant to assist with advice You need to get advice on what is the best name to purchase the property in, as this could impact significantly on tax benefits. Having the correct name also takes into account potential asset protection issues, land tax issues and stamp duties. You will also need your Accountant to explain to you how negative gearing works as well as depreciation, especially with newer buildings. This may impact your decision on what you buy and how much you can afford to spend on the property. The banks will not tell you this. Your Accountant can give you a second opinion on how much you can afford each week and the tax impact on this amount. Armed with this information and the banks pre-approval, you are now ready to take the next step and make your purchase. Contact a lawyer in advance to assist with conveyancing, searches and settlement Form a relationship with a lawyer that specialises in property and make sure that you touch base with them early to get a quote. Once you have found the right property and have instructed them to review the contract, also instruct them whose name should appear on the contract. This is very important and you should seek advice from your Accountant before deciding on the name on the contract of sale. While undertaking the review of your contract, as part of this process you may also want to make sure that your will is current and reflects the latest changes and commitments, or if you do not yet have a will, arrange for one to be drawn up. Commence your search for the right property in which state/city/suburb/street. If required, seek assistance from a Buyers Agent to ensure correct research is done to purchase the right property for you This is the critical step and if you get this wrong could cost you a lot of money so if necessary, seek professional help. Remember the Real Estate Agent is working for the seller not you and they are trying to achieve a sale at the best price possible for their client whereas a Buyers Agent is working for you. Do your own research on the areas within a state, city, suburb and street that have a proven track record of capital growth. Look at the demographics of the suburb and things like proximity to public transport, schools, roads and shops. There are a number of online providers that can assist with information on recent sales and history of the property in the street and area which you are looking, to ensure you don’t over pay. Remember that other than your home, this will be your largest investment decision, so do your homework and seek professional help if required. Understand the process of making offers during the sale or auction of the property. Don’t become emotionally attached to the property, it’s an investment, a business and you are only interested in maximising capital and rental returns. After discussions with your Accountant, you would have determined whether you should look at a new property versus an older one. Understand the rental market and returns gained from the property. Also be aware of the vacancy rates within the area. This will determine how long it may take to find a new tenant if your tenant leaves. Engage an Agent to assist with sourcing an appropriate tenant and for the ongoing management of the property Once you have located the property, negotiated the agreed price and exchanged contracts, you should approach a local agent to assist with the ongoing management. Take […]

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