Smart investment advisers acknowledge that real estate is one of the best methods for building wealth fast. Perhaps nowhere in the world does property provide stronger return on investment than Australia.
The Australian Bureau of Statistics offers a detailed historical report on investments in residential rental property.
The idea of property investment and where to start can be daunting so it’s imperative to do your research. Blueprint Wealth has published a detailed article on helping to understand if property investment is right for you by looking at the risks as well as the benefits.
Planning a property purchase requires more than targeting a location. Learn how to assess the real estate investment market for resale value and risk factors essential to making the right decision.
This five-step property investment plan covers selecting an agent, legalities, and financing options.
1. Agent selection
The first step in finding the right investment property is hiring an agent. Reputation is critical. Review property agents for licence credentials, sales performance, commission structure, and marketing strategy. A solicitor or conveyancer may be required to oversee the legal process to title transfer of the property at time of final transaction. Your investment advisor may be able to recommend an agent who specializes in investment properties.
2. Target market
When seeking a new investment property, undervalued properties located in markets reporting a 10 per cent growth rate in resale annually, offer a higher profit margin on early transfer. Properties requiring no or little renovation are the best selection, followed by those in close proximity with public infrastructure such as transportation and shopping. If a buyer is targeting a property for rental income, low maintenance expense and equity retention coincide with return on investment at the time of resale. Properties listed under market value should be investigated for potential risks such as tax liens or issues related to environmental mitigation.
3. Inspections
Property inspections should be conducted prior to buying an investment property. An inspection report provides details on the condition of the building, and can identify potential problems or costly repair items. Request a pest inspection to identify potential termite or woodworm infestation as well. Conveyancing reports will include drainage diagrams and documents related to environmental hazards registered with the water board or other public authority.
4. Tax incentives
Investment properties may be assigned income tax, capital gains tax or goods and services tax (GST) by the Australian Taxation Office. Depreciation is a standard tax benefit property owners can claim as a deduction on income. Australian property investors also have the option of scheduling depreciation for long-term reduction in annual tax payments. There are more than 50 tax deductions available to property owners at this time. When property expenses are higher than the income produced, due to interest, strata fees, and maintenance costs, negative gearing can reported to offset income taxes.
By setting up a depreciation schedule, followed by application to ATO for pay-as-you-go (PAYG) tax variation, a property owner can reduce holding costs, and increase the sum of mortgage repayments. The income tax withholding variation (ITWV) offered by the ATO is the basis to the PAYG tax variation income withholding allowance required in support of property tax offset. The dual tax incentive was instituted as an incentive for investment.
5. Financing
If not purchasing with cash, most property investors negotiate payment on a real estate transaction with funds secured from a mortgage loan or other asset backed agreement. Fixed rate, variable rate, interest rate, capped, and split rate mortgages can be applied to a property investment. Buyers with equity in an existing property may elect to apply that value to a new investment.
Investors purchasing a property for rental income have the option of backing a loan request with the estimated value of future rental earnings. Self-employed investors in Australia can request a low doc loan. While these lending agreements typically carry either a higher interest rate, larger deposit, or both to offset risk, a low doc loan may be the best option for a self-employed investor. Other common financing options include credit line and trust funded purchases. In order to keep up with financial options available, as well as new taxation guides, follow News & Updates on the ATO website for helpful investment information.
Article Source: Jayde Ferguson – http://www.apimagazine.com.au/blog/2014/09/the-ultimate-five-step-plan-to-property-investment/
