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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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8 Steps for Buying Investment Property

BMT team — Sun, 02 Dec 2018 22:01:21 +0000

So, you’ve found your dream home or perhaps you’ve decided to enter the property investment market. What are the next steps in making that dream become a reality? Step 1. Determine your budget The first step towards home ownership involves a little self-examination. You will need to assess your finances and determine how much you can afford to repay. To help assist you, PropCalc, is a handy application which provides you with the real cost of owning a property, based on specific information about any property in question. Step 2. How much can you borrow? Now that you have a better idea of the total amount you can devote to your future mortgage repayments, you should now be able to determine how much you can borrow. This amount will vary from lender to lender and many banks do offer online calculators that allow you to determine your borrowing limit. Having found the best possible deal, it’s time to apply for a home loan, attend a loan interview and get approval. Make sure you have all the necessary documents ready for your lender or broker. Procedures do vary from lender to lender, but it is likely you will be issued with either a ‘home loan guarantee certificate’ or a ‘pre-approval certificate’. This means that your home loan has been or will be approved when you find the property you want to purchase (subject to a few conditions). One of the main conditions is often a valuation of the property to ensure a buyer isn’t paying too much for a property. Loan approvals don’t last forever. They typically are valid for around six months, but sometimes up to twelve months. Step 3. Exchanging contracts The next step after you’ve finally found the right property following all your research and weekends viewing properties will be signing the contract of sale. Neither you or the seller is legally obligated to go ahead with the sale until a written, signed contract is exchanged. The contract usually details: Property address Names of the parties involved (you and the seller) Selling price Terms and conditions Special inclusions in the sale Date of settlement Exchanging contracts is what it sounds like. Both you and the seller sign a copy of the contract then swap them so they are both signed. You also have to pay the deposit at this time. Step 4. Get legal representation While the contract is usually prepared by the seller’s Solicitor, your Solicitor or Conveyancer should check that everything is in order before you exchange contracts including: Zoning, heritage or title restrictions don’t clash with your intended use of the property That all property rates and taxes are up to date Help arrange for building and pest inspections Step 5. The cooling off period If you have bought through private treaty rather than at auction, that is you’ve made an offer to the seller and it’s been accepted, you may enter a cooling-off period after the contract is exchanged. During this period you can cancel the contract but there may be a penalty. This is normally 0.25 per cent of the purchase price. Step 6. The period between exchange and settlement The time between exchange and settlement is genuinely about six weeks, although this can change if both you and the seller agree to extend or reduce it. This is the time when you should: Arrange the balance of the purchase price. That is, finalise the finance and sign the mortgage documents Insure the property. You don’t want something to happen to the property during the settlement period and find out too late that it’s your responsibility to pay for. BMT Insurance works with some of Australia’s most experienced providers to help you select suitable and cost effective home insurance for your new home At the same time, your lender will: Arrange for a valuation of the property Step 7. Settlement at last Settlement of the property is when the rest of the purchase price is paid and the keys are yours. You may also need to pay stamp duty at settlement. Congratulations. You are now the proud owner of your new home or investment property and you are officially in the ‘property market’. Step 8. If you have purchased an investment property, organise a depreciation schedule A depreciation schedule prepared by BMT Tax Depreciation helps to maximise the cash return from your investment property each financial year. To ensure that you claim the maximum depreciation deductions, a BMT Tax Depreciation Schedule will last for the life of the property or for forty years, as specified by the Australian Taxation Office. BMT also provide a free, easy to use tax depreciation calculator, which can assist you with an estimate of available deductions for any property. Alternatively, you can contact one of our expert staff on 1300 728 726 for a free estimate of available deductions.

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Property market update – September 2016

BMT team — Wed, 07 Sep 2016 01:56:29 +0000

As a property investor, staying informed on any changes or statistical indicators relating to the property market is vitally important. With this in mind, we’ll be providing a monthly property market update which summarises some of the most relevant real estate and finance industry news to assist you to succeed on your investment journey. Property values For the month of August, a 1.1 per cent rise in home values was recorded according to the latest CoreLogic Hedonic Home Value Index. Sydney remains the capital city with the highest median dwelling price, currently sitting at $780,000, followed by Melbourne with a median dwelling price of $576,000. In both of these cities, dwelling values have continued to increase month-on-month by more than 1 per cent, with cumulative growth over the cycle (June 2012 to date) reaching 64 per cent in Sydney and 44 per cent in Melbourne. Hobart remains the most affordable capital city with median values sitting at $306,000. Rental rates The latest CoreLogic report on rental rates, released in August, showed that rents across the combined capital cities fell by 0.3 per cent during July. Rental rates decreased in all cities except Melbourne and Hobart, which have experienced a 0.8 per cent and 3.9 per cent increase over the past quarter respectively. Sydney is still the most expensive city to live in, with a median average weekly rent of $595, compared to a combined capital city median rent of $483, which came in at its lowest level since December 2015. Hobart is the cheapest capital for tenants to live in, with a median average weekly rent of $359. Rental vacancies Figures from SQM Research released at the end of August revealed that the number of national residential vacancies rose during the month of July. A vacancy rate of 2.5 per cent was recorded with 79,300 properties vacant. Of the capital cities, Perth recorded the highest vacancy rate during July of 5.2 per cent. The report showed 10,738 vacancies in total and an increase of 1.4 per cent for the year-to-year vacancy rate. The city also recorded the highest monthly increase in rental vacancies of 0.2 per cent during the month of July. Building approvals The latest data on building approvals from the Australian Bureau of Statistics indicates that there has been a surge in apartment approvals of 23 per cent during the month of July. There were 11,393 apartment approvals during the month, a result which was 16 per cent higher than the number approved during the same month one year ago. Despite this increase, house approvals declined by 0.5 per cent during the month, with approvals almost 3 per cent lower over the year. Finance and interest rates As predicted by most Economists leading up to yesterday’s board meeting, the Reserve Bank of Australia (RBA) decided to keep rates on hold at 1.5 per cent. The recent changes made by the RBA during August and May have encouraged many first-home owners and particularly property investors to take advantage of low interest rates and enter the property market. Recent data released by the nation’s big four banks also highlighted that those with existing home loan debts have been able to reduce their home loan debts, with the nation’s largest lender, The Commonwealth Bank, confirming that three out of every four customers are thirty three mortgage repayments ahead on average Auction clearance rates Property sales for spring were off to a strong start, as the preliminary capital city clearance rates recorded a year to date high of 78.4 per cent according to CoreLogic. A total of 1,858 homes went to auction for the weekend ending the 4th of September 2016, however was a decrease compared to the 2,153 auctions recorded during the previous weekend and the 2,297 auctions recorded one year ago. Of the capital cities, Sydney achieved the strongest preliminary clearance rate of 83.9 per cent.

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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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How tax depreciation can assist with winning property managements

Bradley Beer — Thu, 13 Nov 2014 06:02:21 +0000

Your chances of winning over those ever important property managements can be increased by improving your knowledge on tax depreciation. Ensuring your clients are aware of the benefits of depreciation can help you to negotiate and secure a listing. As a Property Manager you need a large knowledge base to effectively manage a property portfolio. Being able to pass on relevant information to your clients on their investment properties demonstrates your ability to add further value to your services. Improving your knowledge on tax depreciation will provide you with a clear advantage over your competition, rather than if you were to solely focus on the functions your clients might typically expect from a Property Manager. Amanda, a Principal and Licensee from NSW with around 700 rental properties under management, also believes that educating landlords on the most effective ways to maximise their investment is crucial for generating trust and bringing negotiations over the line. “By discussing ways to maximise cash flows from the property other than just helping them achieve the best rent, such as by using depreciation schedules, you can create customers for life from the savings they receive.” “It can also make you look like a much more professional and well-rounded outfit, and shows you care about ensuring your clients receive the best possible financial outcome.” said Amanda. Amanda was recently able to secure eleven new managements from a single investor because he was impressed by her approach to educating him and sharing her knowledge on the whole process of property investing. Amanda was competing against every other agency in her area for these managements, however due to her ability to demonstrate a greater degree of knowledge on tax depreciation she ensured the customer selected her firm over her competitors. Earlier research conducted by BMT has uncovered that as many as eight out of ten property owners are not claiming full depreciation deductions where they are eligible to do so. There are a large number of property investors that are unaware of the depreciation deductions they are missing out on. This is a great opportunity for property professionals to show their clients the extra funds that they can gain from investing in a depreciation schedule.

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