ON INVESTMENT SUCCESS
From page 34
Mortgage structure THERE are many options when it comes to structuring a loan for your investment property, and it is important to get sound advice based on your individual circumstances.
Finance Brokers Association of Australia chief executive Peter White advises seeking out a reputable adviser who is in a position to provide impartial information.
Key topics of discussion should include using equity from your own home, choosing between a fixed or floating interest rate and whether to opt for interest-only repayments.
Mr White said ‘interest-only’ repayments were often – but not always – an affordable way to enter property investment and had added tax advantages.
With interest rates at record lows, it has never been more affordable to service a mortgage. But Mr White, the former chief executive of Wizard Home Loans, recommended being prudent.
“I always recommend calculating whether you could afford to service the loan at 2 per cent more than the current rate.”
Tax advantages WHEN the costs of maintaining your property and servicing your mortgage outweigh the rental income it generates, the loss can be used to reduce your tax liability. But opinion is divided on whether this strategy, known as ‘negative gearing’, is a useful tool.
Mr Hegney points out that you are losing money if you have a property that is not increasing in value and you are negatively geared. “You have to make sure your property is gaining corresponding value to offset your losses. Don’t ever forget that you are losing money with negative gearing,” he said.
Mr Hegney said negative gearing could be a useful tool if an investor channelled all their available cash into their mortgage but still saw a shortfall.
Tax depreciation was another factor all investors should consider when purchasing a property, according to BMT Tax Depreciation Specialist Kristian Jeromson.
Mr Jeromson said it offered the potential to unlock a hidden source of cashflow and to potentially save thousands of dollars at tax time.
“Each person’s investment needs are different and they should consult a professional adviser,” he explained. Landlord responsibilities SWEEPING reforms were made to the Residential Tenancies Act last year, including to the legislation around option fees, security bonds, property condition reports, emergency repairs and minimum security standards.
Landlords who do not follow the new rules could land in hot water, with ignorance no defence for breaking the law.
REIWA president David Airey said the most important role of a property manager was to ensure the owner was not exposed to any harmful legal situations.
Although property management fees generally sat around 10 per cent of the weekly rent, Mr Airey said most agencies were happy to negotiate.
“Different levels of service will attract different fees, and it is all fully tax deductible as part of your business expenses each financial year.”
For more details on the legislation that affects landlords, go to: www.commerce. wa.gov.au.
Capitalising on the current market With the vacancy rate in Perth currently about 4 per cent, tenants have a selection of properties to choose from. To minimise vacancy periods, it’s vital to ensure your property is a prospective tenant’s top pick.
Presentation is everything – good quality photographs, fresh paint and clean carpets attract tenants, as do features such as airconditioning and a dishwasher.
It also pays to choose a property manager who is available to show potential tenants through your property at short notice and after-hours, as tenants will often go for the first property that ticks their boxes.
The old saying “location, location, location” also rings true – properties near transport, city hubs and lifestyle centres always fared better than properties in less attractive locations.
“When times are good, even the poorly maintained properties in inferior locations get rented,” he explained. “At other times, these are the ones that sit vacant,” Mr Hegney said.
But by far the most important tool in protecting yourself from expensive vacancies is being realistic about your expectations – it often makes more sense to secure tenants at a slightly lower rental rate than to have your property vacant.
Seizing opportunities THE huge upside to the softening in the rental market was that many suitable investment homes were on the market with realistic prices, according to Aussie Home Loans’ Western Australia manager Daniel Ganon.
Speaking at a property investment think-tank in Perth this month, Mr Ganon said slowing population growth and higher housing supply had resulted in better prices for investors.
“While WA is no longer the nation’s star property performer, it doesn’t mean property investors can’t find profits. There are bargains to be had among the increased supply of housing stock,” he said.
“The drop in mining investment has removed pressure on property values, creating an ideal space for property investors.”
Mr Ganon advised investors to take a longer-term view of the market and look at coastal lifestyle regions where there were higher levels of capital growth.
Mr Hegney agreed that savvy investors made their best moves when others were ducking for cover or “waiting to see”.