The 70% home ownership ratio is the main reason for the security, reliability, and predictability of residential property as an investment. Owner occupiers, people who own their own homes, do not panic and rush to sell as investors do in some other sectors such as industrial and commercial real estate, or as company shareholders do when times get tough. The residential property market is not dominated by investors. This provides a built-in safety net for the residential property market. Residential property is the only investment market not dominated by investors. It forms a barrier against substantial down-side in the market place.
That is a unique feature of residential property as opposed to all other investment vehicles. Everybody must be housed, whether they rent, or are owner occupiers. No matter who the occupier is, the capital growth is still generated for the owner. The safety of residential property is underpinned by owner occupiers who do not sell if a market lacks strength. They need more compelling reasons, are better placed to hold through softer markets and continue to need a roof over their heads.
There are comprehensive insurance policies on the market (tax deductible and relatively low cost) that will protect your property against most forms of damage, these include:-
Damage by tenants
Default of rent
Departure of tenant without notice
Denial of access by tenant
Breaking of lease
The right kind of property management will save you time, money and headaches. Managers can assist you in some or all of the following areas; maintenance, tenant screening, rent collection, preparation of lease, inspection and tenant relationships. It is important to look for someone who is not only a good manager but also someone who runs the rent-roll like he would run his own business.
The amount of interest paid will remain constant for the duration of the fixed term, even if interest rates increase, and
Because the amount of your repayment is known in advance, it is easier for you to plan ahead.
Ensure that you ask your Financial Advisor to show you what effect an increase in interest rates would have.
There are two principles that will ensure your security when it comes to borrowing:-
1. Only borrow to purchase appreciating assets, and
2. Make sure your debt is manageable.
A professional tax depreciation schedule has the potential of substantially reducing your taxable income. Thus, by claiming these depreciation benefits, you as an investor, can significantly enhance your after-tax return from your investment and generate a healthier cash flow.
New or near-new buildings are depreciable over a 40-year period at a rate of 2.5% pa. In this case, depreciation is related to the building itself, and is based on the cost of construction of the building rather than the acquisition cost.
For residential properties, depreciation is calculated at a rate of 2.5% pa if construction started after 16 September 1987, and 4% if construction started between 18 July 1985 and 15 September 1987. Residential properties built prior to 18 July 1985 don’t qualify for a building allowance.
Fittings and fixtures depreciate more quickly and can be written off over a five-year period. Assets decline in value as time goes by.
Depreciation on an investment property provides investors with substantial tax benefits, which can help them improve their cash flow and increase their returns. This is an allowance made under the Income Tax Assessment Act (1997) to recognise the decline in value of an asset when it is used to produce an income.
New investment properties experience the highest depreciation allowance in the form of ‘depreciating assets’, more commonly referred to as plant, articles and machinery items.
Depreciating assets include items such as:
Carpet ; Ovens; Cook-tops; Dishwashers; Clothes dryers; Blinds and curtains; Air-conditioners; Heaters; Hot-water systems
Together, the building write-off allowance and the depreciation of the plant and equipment will provide you with substantial taxation benefits. This is even more so the case if the property you purchase is brand-new, as the cost base for depreciation is much higher.
Professional advice from a quantity surveyor is important to ensure that investors maximise their depreciation claims.
Real estate agents, valuers, solicitors and accountants, are not recognised by the ATO as being able to determine the cost of construction.
Quantity surveyors determine the value of depreciation based on historical data on the cost of construction and the cost of assets. The ATO will not accept the cost of constructions based on published area rates, unless the quantity surveyor uses them only as a guide.
And remember, a quantity surveyors’ fees are tax deductible.
There is no finished product to inspect. . hence the phrase buying off-the-plan.
Tax Benefits: Buying off-the-plan can maximize your returns as the tax benefits associated with an investment property are greater when the property is purchased brand-new.
Time:With settlement not likely to occur for 12-18 months, you have more time to establish your investment strategies/save for repayments.
A contract for purchasing off-the-plan will be much more detailed given that construction may not have commenced, or may have only just begun. In this case, the contract will include everything from proposed body corporate assets and expenses to an outline and schedule of finishes for each property.
2. Settlement Timeframe
While settlement for an existing property generally occurs 30 days from the contract date, purchasing off-the-plan allows more time between contract date and settlement.
16. How much deposit is required when purchasing off-the-plan?
A 10% deposit is generally the standard real estate practice and is required upon the contract becoming unconditional. Usually within 14 days of the contract date.
As the property you have purchased nears completion you will be advised of the official settlement date, you will then need to organise your financial arrangements to ensure that you are ready for settlement.
This can be a considerable advantage, especially when buying off-the-plan as there can be 12-18 months before settlement.
Property within walking distance of a CBD has the potential for strong demand for long-term and short-term corporate lets. This generally requires a far greater investment in the furnishings because of the style of tenant you are likely to attract, and you may need to provide everything from the sheets and towels to the cutlery and crockery.
If you’ve purchased in an area near educational institutions, such as a university or a TAFE college, a furnished property may improve your chances for a good tenant and great returns. International students, in particular, are more likely to choose a furnished property over one that is unfurnished.
Furnishing an apartment will provide additional tax benefits through increased depreciation that can be claimed against your income.
Remember, it’s vitally important that you discuss this with your accountant, who will be best placed to advise on whether this strategy will be beneficial to your personal circumstances.
Properties in the suburbs are more likely to be rented unfurnished as by far the majority of tenants will have their own furniture, however, the right furnished property in a suitable area can provide exceptionally good returns.
For most mature people, the greatest fear is that they will live longer than their money. Fear of poverty is the number one fear from which the majority of people suffer. Sadly, so few take any action to prevent poverty or are blissfully ignorant of what the future holds for them.
There are six main reasons why 93% of the population do nothing about tackling their fear of poverty and they are:
People don’t plan to fail, they fail to plan!
Most people wish for wealth, but few have a definite plan and the burning desire which pave the road to wealth.
We have absolute confidence that by joining us in the next stages of your learning and planning program, you will increase your knowledge and ability to be among the 5% of the population who plan the road to independent wealth.