Financial Growth
The three key areas of financial growth through Real Estate Investment are:
Capital Gain - the value of your investment increases your equity, which in turns allows you to borrow against the property for further investments
Return on Investment (ROI) - the property returns income.
Reduction in taxable position - you utilise your ownership costs and depreciation to reduce your taxable income.
At First Property, we ensure our investment properties selected for sale have a potential to return capital growth, return on investment and a reduction in taxable income to ensure the greatest potential in wealth creation.
Investing in real estate is a comparatively low risk way to leverage your savings and income, build wealth and improve your overall financial position. The best structure for investing in real estate depends on your individual financial position. Our First Property investment and finance consultants will work with you to determine the best investment scenario to achieve the maximum financial return.
Investment Options
There are three main options to benefit you:
Positive gearing - The income from an investment increases your taxable position and exceeds the costs to own the property.
Neutral gearing - The income from an investment is neutral, and requires little or no contribution from you to support the investment.
Negative gearing - The income from an investment is lower than the costs and you are required to contribute to the short fall in costs to support the investment property. These contributions reduce your taxable position and the tax you pay.
Types of real estate investments
Off the plan investments - These types of investments provide a good chance of capital gain because you are buying before or during construction. The property increases in value during the completion of construction, and you benefit from the growth in value. Because the property is new you can also maximise rental returns and tax depreciation.
New developments - When you buy a new property, you can be assured of quality standards, modern facilities, higher levels of security and environmentally friendly standards. The re-sale price is often significantly higher and you can maximise rental returns and tax depreciation.
Pre-owned investments - Pre-built investment properties range in age and can offer an established infrastructure and community facilities. These properties provide rental income, desirability for tenants and capital gain. The tax beneficial depreciation is lower than new properties, and pre-existing investments can often have higher maintenance costs.
Purchase costs
It's important you are aware of the purchase costs in buying a property, so you can factor this into your property wealth creation strategy. The standard purchase costs include:
Deposit - A deposit to purchase a property can be supplied in two forms. The first is a cash deposit, most often initiated with a refundable 'holding deposit' that shows you are interested in a property. The second form of deposit is equity you put into the property from another asset in particular another property.
Mortgage Application Fees - A fee for the mortgage application, valuations, mortgage insurance and processing can sometimes apply. This is different for all lenders, some only charge a nominal fee.
Stamp Duty - State Government Stamp Duty is different in each state and territory of Australia, so be sure to factor in this additional cost.
Strata Fees - Owners of apartments, units and townhouses are liable to pay 'strata fees' or levies. These are different for every building depending on the maintenance required, the level of management and the facilities. These are grouped maintenance fees and costs for the building and are collected by the building's Owners' Corporation or manager who is appointed by the owners. Strata fee figures are available before purchase and are generally payable quarterly.
Local Council Rates - Owners of all properties are liable to pay 'council rates' or levies. These are costs for providing the community infrastructure and are collected by the local council. Council rates figures are available before purchase and are generally payable quarterly. They are different for every area.
Water Rates - Owners of all properties are liable to pay 'water rates' or levies, these are costs for providing water to the property and are collected by the local water company. In many cases these are paid by the tenant under the terms of the lease. Water rates figures are available before purchase and are generally payable quarterly. They are different for every area.
Rental Management - The rental manager can charge an amount for the initial letting fee (normally about 1 weeks rent), plus 4 to 10% of the rental collected as the ongoing monthly management fee, and sometimes a percentage of any costs they pay for you.
Tax Deductions
Property investment offers significance tax deductions which assist you in your wealth creation portfolio. The full range of tax benefits applicable to your investment circumstance should be discussed with your accountant or tax advisor, but some of these include:
Negative Gearing - The costs of owning an investment property, including interest on borrowings can be greater than the annual rental income from the property. Commonly referred to as 'negative gearing', these losses, together with depreciation, are offset against your 'taxable income' to reduce your taxable salary, investment income or retirement income.
Depreciation - is a significant tax benefit for new and near new properties through the depreciation of fittings, fixtures and a special allowance to deduct construction costs.
Other taxable Fees - including inspection and management fees, rates, interest, insurance premiums and repairs (either on a taxable or depreciation basis) are all types of possible expenses you can claim.
To maximise your tax deductions, it is ideal to borrow at reasonably high levels (80% of the purchase value), with maximum depreciation through a new or near new property and in a location that is in high demand with strong capital growth.
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