Negative Gearing for Tax

Negative gearing can have significant tax benefits but don't let it be your only motivation for buying an investment property. The property you choose needs to stand on its own merits so that it has the potential to make money in the long term through capital gains.

What you want to achieve is a situation where tax rebates and your rental income are used to pay off your home loan, and down the track when your property has increased in value you can sell it at a profit or keep accumulating multiple properties.

Indeed, one of the main advantages of negative gearing is that it may let you invest in a more valuable property than you would otherwise have been able to afford using only your cash savings.

When using negative gearing, it's important to be prepared for unexpected impacts on your cash flow, such as interest rate rises, unforeseen repairs in your rental property or a period of vacancy. In these situations you need to be in a financially strong enough position to be able to repay the shortfall and continue servicing your home loan.

You can overcome many of the risks of negative gearing by doing some homework and selecting your investment property with care. When you're ready to invest your mortgage adviser can help you find a loan that suits your needs.

What you can claim on tax

As a property investor seeking a tax benefit you should always look for the greatest amount you can claim in expenses on your rental property. Keep in mind that the Tax Office takes a close look at rental property claims so it's essential to keep good records of all expenses.

Expenses for which you may be entitled to an immediate deduction in the income year you incur the expense include:

• advertising for tenants

• body corporate fees and charges

• cleaning

• council rates

• gardening and lawn mowing

• insurance ( building, contents, public liability)

• interest expenses

• land tax

• pest control

• property agents fees and commissions

• repairs and maintenance

• travel undertaken to inspect the property or to collect the rent

• water charges.

Expenses that may be claimed over a number of income years:

• borrowing expenses

• amounts for decline in value of depreciating assets, such as carpet, furniture and appliances

• capital works deductions, i.e., certain construction expenditure.

Did you Know? 

You can't claim these on tax:

• acquisition and disposal costs of the property - these are usually included in the property's cost base for capital gains tax purposes

• expenses not actually incurred by you, such as water or electricity charges paid by your tenants

• expenses that are not related to the rental of a property

• GST credits for anything you purchase to lease the premises

For more information about common mistakes made when claiming rental property expenses, see 'Rental Properties - avoiding common mistakes'.

http://www.ato.gov.au/content/00131327.htm

Rents increasing across Australia

Rents increasing across Australia

Wednesday, 22 May 2013

Brendan Wong

Australia’s capital cities are experiencing a healthy growth in rents, particularly two cities, according to figures by RP Data.

Most of the rental growth has been in Perth and Darwin, where rents have increased by more than 10 per cent over the past year.

In Sydney and Brisbane rents have increased at about three to four per cent, while Adelaide and Melbourne’s housing markets have experienced one to two per cent growth.

RP Data senior researcher Cameron Kusher told The Adviser that rents were generally trending higher. The exceptions were Hobart and Canberra where they had fallen by 1.5 per cent and 0.9 per cent respectively.  

“[Rents] have typically grown at a faster pace than values over the past year, so we are tending to find that rental yields are improving,” he said.

“You’ve got strong yields in Darwin, up around six per cent, so too in Hobart and Canberra. There’s been some big improvements in yields in Perth, and Brisbane units are now yielding more than 5.5 per cent. From an investor perspective, some of those product types are becoming more attractive.”

Source: http://www.theadviser.com.au/breaking-news/8713-rents-increasing-across-australia  

Negative gearing or positive cash flow?

There's no easy answer to the much-debated question: do negatively geared or positive cash flow properties make the better investment choice?
There are many investors who swear by negative gearing, which is when the cost of the property, including interest on the loan used to buy it, outweigh the returns it generates. This loss can be claimed on tax, which is where the appeal of negative gearing lies.


Others strongly believe having a positive cash flow is a wiser choice because it means you have more income than expenses and cash in your pocket every week. This is achieved either through positive gearing - where your property's rent returns are high in proportion to the purchase price and cover all the expenses. Alternatively you can achieve a positive cash flow with a property when its outgoings (loan interest, body corporate fees etc) are lower than the income you earn through rent and tax deductions (from claiming expenses and depreciation).
The reason for the divide in opinion is that there is no shortage of successful investors who can vouch for one or other of the strategies or those who have even used a combination of both. Much of the success of property investment depends on individual choice, circumstance and goals, which means that while something works for one, it may not for the next.

The beauty of a positive cash flow property is that it won't burn a hole in your wallet but you'll have to work hard to find one that also delivers good capital growth.
Keep in mind that any profit you make on the rental income is likely to be subject to capital gains tax (after depreciation and other tax deductions), so it's wise to put aside a component of your rent return to meet the tax bill.
Positive cash flow properties are suited to investors who are looking for a conservative investment strategy and are keen to use the extra cash in the pocket to pay down debt and/or increase their equity to make room for further investment.

Here are 10 top tips for finding positive cash flow property:

1. Buy a property that generates a strong rental yield (the return your property generates compared to the property's market value).

2. Know your statistics. Look for indicators that will drive rental prices upwards like a low tenant vacancy rate or suburbs with a shortage of properties for sale/lease.

3. Look for market cycles that are ready - places which have not grown for a while and get in at the right time.
4. Look for property that you can add-value to through renovation.

5. Regional areas are great places to find positive cash flow properties, but make sure your property is exactly what the market wants otherwise it won't make any capital growth. Thoroughly research both property and town: look for high employment rates, a spread of employment sectors and a growing population.

6. Look to buy in places where huge infrastructure spends are being projected.

7. Borrow as little as possible to fund the property. The interest cost on an investment loan can be one of the more significant expenses of a rental property, so the less you borrow, the lower the interest cost.

8. Don't give up on capital growth. In areas that command high rental yields, it's harder to find properties with good capital growth, but not impossible. It's still worth looking for locations where there are factors in place to support property price growth like shops, restaurants, transport links and job opportunities.

9. Buy new. A new property is more likely to provide a positive cashflow than an older dwelling due to its depreciation benefits.

10. Seek advice. Talk to real estate agents, property managers and other investors. The more advice you seek the more you will learn about growth areas and tenant demand. Contact us to find out how the right loan can play a key role in generating positive cash flow for your property.

A trusted Mortgage Adviser

Wouldn't it be great to know you can trust your mortgage adviser to give you the best advice and steer you down the right path? Well you can! Here's why...

We are licensed

The mortgage industry is regulated by the industry bodies MFAA and FBAA, with a Code of Practice that requires high professional standards, fair business practices, ethical behaviour and compliance with laws and regulations.

New national regulation for the credit industry, including mortgage advisers, commenced in July 2010 (known as the National Consumer Credit Protection Act), bringing the regulation of residential investment property under the control of ASIC (Australian Securities and Investments Commission).

By law mortgage advisers have to practice "responsible lending", which means extending credit that is unsuitable to the needs and financial capacity of the consumer is an offence.

We are honest

It's standard industry practice for mortgage advisers to be remunerated by lenders and receive commission on the loans we settle. This puts us in the position to be able to negotiate with a range of lenders and mortgage providers on your behalf to find the best situation for you.

We are up front about the fees associated with our service and we will happily provide client testimonials.

We offer premium advice, service and support

It is our job to advise, educate and help you to meet your financial needs. We are well versed in financial services, have years of market experience and a wealth of market knowledge.

Combined with this expertise is the personal commitment we make to our clients to listen and respond to their needs. We care about our clients and thrive on keeping you happy and being available when you need us most.

We recently had a client who told us "you made this so easy for us - I couldn't have done it without you."
It's feedback like this - from a happy client - that reminds us why we became mortgage advisers and why we love our job!

Premium Broker

Equitimax Pty Limited ABN 40 105 746 692 trading as Premium Broker
Australia Credit Licence 392625

Vow Premium Brokers are Accredited Members of Vow Financial Pty Ltd & Mortgage & Finance Association of Australia.  (MFAA) 

The Right Time to Buy?

The right time 

Predicting the perfect time to buy is difficult, even for the experts, yet many investors get caught in the fear of buying at the 'wrong time'.

The truth is that when to buy is not nearly as important as actually buying a property, particularly if you are planning to hold onto it long term. As long as you are prepared to keep your property through the good times and the bad, you needn't worry too much about temporary shifts in prices because it is still likely to end up being profitable in the end.

If there's a timing issue that's important, it's getting your personal timing right: are your finances ready, do you have a plan...

Do you have a plan?

Write down your goals for property investment - do you want to become a landlord or would you rather renovate and sell properties? Do you want a positive cash flow property, a high capital growth property or a balanced investment? Be clear on what you are seeking to achieve and what type of property fits your strategy.

Are your finances ready?

Your finances should be in place before you go shopping for a property. As your mortgage adviser we can help ensure your finances stack up, which will narrow down the most suitable areas for your research efforts.

Have you researched?

As an investor you need to use statistics to not only find the right suburb but also the right property within the suburb. Look for areas with low vacancy rates, broad buyer and tenant appeal, high employment and good transport links.

Are your emotionally ready?

You need to be prepared to put your emotions aside and think like an investor, not a home owner. The property you buy doesn't need to be one you love, or even particularly like, as long as it meets the needs of the rental market. You also need to be detached enough to walk away from the property if the deal doesn't work out the way you wanted.

Are you prepared for risk?

Events such as a major repair, employment change, extended sickness or sudden interest rate rise could put you in an uncomfortable financial situation. Make sure you are ready for the ups and downs of investing to ensure that your journey as a property investor is a long and profitable one.

Have you sought good advice?

By talking to experts you will be able to avoid many of the pitfalls that inexperienced investors encounter. As your mortgage adviser we can help guide you through the property investment process and refer you to expert advice where required.

Self Managed Super: A Growing Trend

Self Managed Super: A Growing Trend

Lenders continue to launch new loan products to cater for the soaring popularity of self-managed super funds (SMSFs).
With many of the features of regular home loans, these products entitle trustees to borrow within their SMSF to buy residential investment property or refinance an existing SMSF loan. The loans are repaid from rental incomes and contributions paid into the funds.

Since the laws were changed in 2007 to allow SMSFs to borrow funds to acquire residential property, this type of property transaction has become increasingly popular. Currently more than 800,000 Australians invest around $280 billion of superannuation through the SMSF structure and this is a trend that is expected to accelerate. SMSFs make up around one-third of the overall superannuation sector and have an asset value of $14.87 billion.

One of the many attractions of a SMSF is that is puts you in the driving seat and allows you to do something pro-active about your financial future. As the trustee of the fund, within the boundaries of the law, you have the flexibility to decide how your funds are invested and how the fund is to operate. Unlike the ups and downs of the share market, property investment provides the security of yielding positive returns for investors, especially if it is a long term investment.

Better tax management is another attraction as investing in an SMSF has numerous tax advantages. There is also the ability to pool funds with up to four members, which means family members can pool their savings to buy a property that would otherwise be beyond their reach.

Data from the Australian Taxation Office shows that more than 3,000 SMSFs are set up every month and that the sector is growing at a rate of 10% a year. In the four years to 30 June 2012, the SMSF sector grew by $109 billion, which makes it the strongest growing sector of the superannuation industry.
The statistics show that SMSFs have truly positioned themselves as one of the most popular forms of superannuation savings. If you are tempted to join this growing trend, speak to us today about how we can help you set up your own SMSF.

NEED HELP ?
Give Premium Broker a ring and we can help with getting the finance approved for a SMSF and even put you in touch with specialists if you need to set one up.

Housing Affordabilty - Best in a decade

Probably a good indication of how expensive Housing Affordability has been over the last decade. This article shows that house ownership is cheaper now than it has been for a decade.


An Article from The Adviser
http://theadviser.com.au/breaking-news/7838-housing-affordability-on-the-up

Housing Affordabilty - Best in a decade

A spate of interest rate cuts over the last 12 months has helped housing affordability to reach its best levels since the first half of the last decade.

According to the Australian Housing Outlook report, housing affordability has improved across almost every capital city over the last 12 months.

“Outside of 2009 when interest rates were at 40 year lows, housing affordability in Sydney is at its best level since 2001, despite being the least affordable capital city,” the report read.

“Similarly, affordability in Brisbane is at its best level since 2003, and Adelaide and Perth are at their most affordable since 2004.”

The report said the combination of a fall in median house prices, coupled with a 95 basis point reduction in the standard variable interest rate over 2011/12, has seen housing affordability improve across all cities.

And while affordability has already improved significantly over the last 12 months, BIS Shrapnel’s Robert Mellor told media in Sydney yesterday that he expects further improvement in housing affordability over the coming year as the average standard variable rate is expected to fall another 40 basis points in 2012/13.

As per the report, homes in Sydney were considered to be the “least affordable” of all the capital cities, while Canberra was considered to have the “most affordable properties” when monthly mortgage repayments and the average income are taken into account.



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ANZ cuts rates by 0.20%

ANZ recently cut is variable rate by 20 basis points , becoming the last major to pass on the RBA's cut.

The bank announced it will reduce its standard variable rates by 20bps effective next Friday. The move takes the bank's variable rate to 6.60%, the same as CBA and lower than Westpac's 6.71%, but higher than NAB's 6.58%.

ANZ Australia CEO Philip Chronican stated
“While this increase in competition is benefiting the majority of our customers through historically high deposit rates relative to the cash rate, last week’s decision from the RBA has provided some scope to once again reduce our variable lending rates,” he said.

Major Banks Standard Variable Rates
ANZ - 6.60%
CBA - 6.60%
NAB - 6.58%
WBC - 6.69%

But remember the Standard Variable is half of the story.
The real story is:
   1. What discount can you get - ie the Actual Rate you pay
   2. What are the other Fees
   3. What features will the loan have

Give Premium Broker a call - We make finance easy

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www.PremiumBroker.com.au 

 

 

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