With all the uncertainty in the world at the moment, many people are thinking to themselves, ‘is now a good time to buy an investment property?’

‘Even in the current market, plenty of us are looking at getting our foot in the property door. It is easy to understand why.’

Purchasing property to rent out is still the most popular way to build up assets. However, it is a major decision, which requires planning, research and careful budgeting.

The good news is that property can be a potent wealth builder over the long term, and like any investment it experiences cycles. So is now a good time to buy in? It depends on your goals.

Here’s 5 steps you can apply to property investing that will pay off.

1. Time Frame

Knowing when to jump in really depends on your investment time frame. Property is an investment with at least a 7 to 12 year horizon, depending upon market cycles. Transaction costs to buy and sell are around 9 per cent, which means you have to make that back before you get the benefit of any growth. Property investment as a short-term investment is only for the very lucky, or the very brave!

2. Strategy

The right time to invest in property is as soon as you’re financially ready, and that means putting together a strategy that includes a purchase plan and budget, because you really need to know how much cash you have available to invest and what returns to expect. And you’ll want to look at the tax benefits too. For example, with a positively geared property the tenant repays your loan while you build equity. This allows you to sell the property later and use the proceeds as a deposit for your next property.

If you are wondering is now a good time to buy an investment property, then start preparing now so you are ready to buy when the time is right for you

3. Pre-approval

Be ready to buy the perfect property when you find it by getting a pre-approval. A good mortgage broker can be a valuable resource in this step.

Did you know that after you take out a loan to purchase an investment property, interest on the loan and most property expenses can be offset against rental income for tax purposes?

4. Research

Based on your strategy (negatively or positively geared), you’ll be able to begin your search, which will ultimately determine whether there is a good investment out there that fits your budget. Look for areas where high growth is expected, that is, where there is potential for capital gains. And check out areas where rental income is high compared to the property value.

5. Take Action – is now a good time to buy an investment property

Making property investment work is about getting the fundamentals right, which is usually achieved by solid research, observation and calculated risk. Of course, property prices go up and down, but if you don’t sell you are unlikely to ever make a loss. So don’t let indecision be your biggest barrier to entering the market. With the right advice, research and property selection, you can always profit.

What next?

The best thing to do next is remain in the market — especially if you’re looking to use property as a way to replace your income in the long term and retire on your investments. High yields and pockets of growth can always be found. The key to having a great property investment is ensuring it outperforms the market in capital growth because serious returns come from areas with great growth prospects.

Yahoo Finance published an interesting article about buying property now too.

If you’d like to chat about finance, please contact us.

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If you are wondering what to look for when buying an investment property, here’s 5 tips to help you get started when looking to invest in property.

Many of the most successful investors use real estate to build wealth.

If you’re ready to jump into property investment as an asset class, there’s some things you’ll want to know because where and what you buy can affect your return on investment.

Let start with what to look for when buying an investment property

1. Where to buy

• Look for areas with high growth, that is, where there is potential for capital gains.
• Look for areas where rental income is high compared with the property value.
• Research median prices to show what you might pay for property in the same area.
• Investigate vacancy rates. A high turnover may make it harder to rent the property or make it difficult to sell later.
• Research proposed changes in the suburb that may affect future prices. Things like planned developments or zoning changes can affect the future value of a property.

2. What to buy

Look for properties with features that have wide appeal, such as a second bathroom, lock-up garage or somewhere close to shops, schools and transport.

• Choose a property that will attract more than one segment of the rental market, such as singles, couples, young families or retirees.
• Low maintenance costs are important: Units can be perceived to be easier to maintain than houses, although you will have to pay owner’s corporation fees, which can decrease your returns.
• Property prices can fluctuate: When deciding if a property investment is right for you, remember that property prices can go up and down.

3. Understand borrowing costs

Buying, selling and managing an investment property can affect your overall return. When you buy a property, you will have to budget for expenses. For example, if you borrow to invest you will have interest repayments and if your investment is positively geared you may pay tax on your rental income. If you sell the property you may also have to pay capital gains tax if the property has increased in value.

Key things to decide in what to look for when buying an investment property:

Most people borrow to invest in property. But the more you borrow, the more you pay in interest. Therefore, it is important to understand negative versus positive gearing:

Negative gearing

Negative gearing is when your income from an investment is less than your expenses.

A loss can be used to reduce your taxable income which will reduce the amount of tax you pay. You’ll need to know what you can claim as a deduction, and remember you are only reducing your tax payable because income from your investment isn’t covering expenses.

Positive gearing

Positive gearing is where your income from an investment is higher than your interest and/or other expenses. This means you will have extra money left over but you may have to pay tax on the additional net income.

Other things to consider in what to look for when buying an investment property

4. What expenses to budget for

There are numerous costs involved in real estate and this is the reason why you should start with a plan and finish with a list of what you’ll need to budget upfront. Consider using the “35% rule”, which suggests that, on average over time, expenses on a property will equal 35 per cent of total income. So if a property rents for $2,000 a month, put aside say $700 to cover expenses a month before paying the mortgage payment.

5. Managing an investment property

You have two options when it comes to managing your property: DIY or engage a managing agent.

• If you manage the property, you avoid paying management costs. But you’ll have to do everything, from showing the property to tenants to collecting rent and organising repairs. You also need to comply with landlord regulations.
• If you get a managing agent to look after the property, their management fees are generally tax-deductible.

Terri Scheer, the landlord insurance company publishes a guide on what to look for in an investment property too.

If you’d like to chat about finance, please contact us.

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If you are wondering ‘should I buy the house or property next door?’ then it is really important to consider whether, where and what, you buy will affect your return on investment.

The real estate mantra ‘location, location, location’ is no less vital when choosing an investment property.

So should you buy the house next door?

It depends. Investing in real estate — or any investment — should be about increasing your wealth and securing your financial future. Therefore a simple rule before considering any property purchase is to understand the market where you are buying.

If you decide to invest in a house in your neighbourhood, you’ll need to do some leg work.

For example, accessing independent information from a source such as RP Data can provide crucial insights. This will include data on average rents, property values and demographics. You also need to investigate whether council or government are planning works which may impact negatively on the area you’re interested in.

Putting all your eggs in the one basket may not be the wisest financial idea either. Different property markets, for example different States are often at different stages in a market cycle. For example, one State might be booming and another might be going into a downturn. By having property investments in different markets, you can go a long way towards hedging your bets, which can be of benefit in the long run.

Of course, an advantage of buying the house next door is that you can choose your neighbours. But a disadvantage is if the value of one house takes a hit, it is unlikely the other one will rise.

It all comes down to making considered decisions, because positive returns can be delivered if the fundamentals align. Here’s 4 things to reflect on, which may help to mitigate risk:

1. Buying at the right time is critical

Investing in real estate is all about capital growth, so choosing a property that is more likely to increase in value is one of the most important decisions you can make.

2. Count the cost of investing if you are considering buying the house or property next door

Before making the leap you also need to be aware of taxes involved in property investing and add these into your calculations. Stamp duty, capital gains tax and land tax need to be taken into account. While interest rates will vary over time, property investors can expect to increase rents when rates are on the rise and hold steady when they fall.

3. How you manage your investment when you buy the house next door

How you manage your investment can also determine whether you will reach your financial goals. It pays to consult professionals you can trust. With the right advice, you can decide if it is the right path for you.

If the fundamentals check out, also consider a property manager to find the right tenant. It is money well spent [and generally tax-deductible] in the quest to get the best possible value from your property.

4. Investment time-frame

While there’s no doubt investing in property can put you on the path to long-term wealth. Property should be seen as a medium to long-term investment to maximise returns. That’s because if you sell it within 12 months you’ll be slugged with a hefty capital gains bill. If you sell well after that then a 50 per cent CGT discount applies if the investment property was originally purchased with the intention to hold it. Just be cautious if you are considering buying the house next door.

Also, it worth noting that it typically costs 5% of the purchase price to get into a property in taxes (i.e. government stamp duty) and fees (i.e. bank fees and Solicitors costs). And up to 4% (i.e. real estate agent fees and advertising costs) to get out. So for every $100,000 you spend on a property, you need to make back an additional $9k before you break-even on any sale.

Domain.com.au have lots of handy tools to allow you to research more about the house next door and other information about your suburb.

If you’d like to chat about finance, please contact us.

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If you are wanting to buy property overseas – ‘Just remember that old caveat, buyer beware.’

If you’re thinking about buying a cheap property overseas in the hope that it will be a lucrative investment opportunity, remember that old caveat ‘buyer beware’. That doesn’t mean you should give up on the dream of holding property abroad. Just do your homework because overseas investments involve significant additional risks that you need to be comfortable with before you start.

Of course, there’s never been greater access to international investments. Investing overseas can potentially help diversify a portfolio and give access to opportunities not available at home. But it’s more difficult to ensure the investment suits your needs when you lack local knowledge or can’t regularly inspect the property.

So before you take that leap of faith into foreign ownership, consider the following issues when looking to invest overseas:

Do your market research before you buy property overseas

Property markets are often in different stages of the property price cycle. It’s important to find out how prices have behaved where you plan to make your purchase. A trend of rising prices in Australia doesn’t necessarily mean values are doing the same overseas. Jump on a plane to do your homework in the country of choice. And make sure you have all the necessary permissions, licences and planning consents before signing a contract or agreement. As always, seek professional legal advice before you do anything.

Property restrictions

There may be barriers to entry you’ll want to know about. For example, in the US, foreign buyers can’t invest in housing cooperatives but can purchase single-family homes, condominiums, duplexes or town houses. In China, there are no restrictions on the types of properties foreigners are allowed to own but investors must have worked or studied there for more than one year prior to purchase. Make sure you calculate all the tax you’ll be liable to pay, both at home and abroad, and as an Australian resident you can be taxed on your worldwide income, including rental income from overseas property and capital gains on overseas assets.

Find a real estate agent to help you buy property overseas

Don’t succumb to pressure to sign up with a deposit before you’ve obtained independent advice. It’s best to secure a real estate agent with a good reputation and references to ensure costly pitfalls are avoided. In the US, the sales commission is paid by the seller, so buyers don’t pay to have an agent to work on their behalf, but licensing laws differ in each state. Check out an agent’s credentials as the licensing system in some countries doesn’t always ensure they’re qualified to guide you through the maze of finding, evaluating and financing real estate. Plus, good property managers and tenants are hard to find, especially when you’re so far away — you’ll need someone on your side.

Retain a lawyer or broker

Although not mandated in the US, UK or Europe, it is a good idea to seek the services of a real estate solicitor (attorney). They will help with any legal issues or questions you have along the way. A good mortgage broker would be valuable too. A property lawyer can review the sales contract, check the title and other documents relating to your purchase and advise on legal and local tax issues concerning the property. Just make sure they are fluent in both English and the local language where you plan to buy.

To buy property overseas, payment generally occurs via currency transfer

Changes in exchange rates affect the amount of money you receive or send. A small change to the rate could drastically affect the value of your purchase or the income you might receive. You’ll need to pay for your overseas property in the relevant foreign currency. This will either be as a large lump sum or as regular mortgage payments. Investigate local laws before using a currency exchange service abroad, or at home. It may sway where you choose to buy.

For those with a sense of adventure, global property investing can pay off but the factors discussed above are just some of the risks you may face. Remember local politics could mean that your entire investment could be at risk. Make sure that any country you invest in is politically stable too.

With any investment it’s important to get advice before you buy property overseas. It’s vital to know how it fits with your goals, risk tolerance, investment time frame and overall portfolio.

If you’re looking to buy property overseas, RealEstate.com.au have a dedicated international section too.

If you’d like to chat about finance, please contact us.

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If you are wondering, can I buy property with my super, you are not alone.

It would seem there are few ways to shield your hard-earned cash from hefty taxes.

But it’s not impossible — and you don’t have to go offshore because tax-minimisation strategies are legal in Australia.

You need only look to superannuation and property to find some of the best tax haven benefits on earth.

Take superannuation. It’s as simple as understanding how it is taxed to take advantage of concessions that can reduce your liability.

Super is taxed in three ways:

1. when money goes in the fund (contributions);
2. while it sits in the fund (investment earnings);
3. and when it leaves the fund (super benefits).

Some tax-effective strategies not only reduce the liability at all of these stages, they can create a zero tax environment. And you don’t have to be on a high income to benefit.

It makes sense to consider buying property with your super.

Co-contribution savings

For those earning $53,564 or less per year (before tax) for 2019-20, who make after-tax contributions to their super under the co-contribution scheme are eligible to receive matching contributions from the government. Something for almost nothing.

On earnings less than $38,564 for 2019-20, for example, the maximum co-contribution is $500 based on $0.50 from the government for every $1 contributed. In effect, you make a 50 per cent return. Try getting that from a term deposit.

Low and high-income earners can reduce tax using pre-tax dollars through salary sacrificing. This is when your employer redirects a portion of your pay as a contribution to super. By sacrificing some of your before-tax salary and putting it into your fund, you’re taxed at only 15 per cent.

There are caps on the amount you can contribute to super in any one year but the tax savings from making pre-tax contributions through salary sacrifice is one of the easiest strategies to decrease the tax you pay while increasing your super returns.

Investment earnings – buying property with super

The more you put in super the less you pay in tax because income earned in super attracts a maximum rate of 15 per cent. The amount of tax a fund pays depends on whether it has any tax deductions or credits. For example, a growth fund may only pay 7 per cent tax because its dividend income entitles it to tax credits. So it is also good to know, that in most cases there is no additional tax payable when transferring from one super fund to another to consolidate or switch funds.

Super benefits

There are tax benefits when you become eligible to access your super. Whether you opt to take a super income stream to provide a regular income, or withdraw all or part of your benefit as a lump-sum, in most cases the money incurs no tax.

If you’re eligible to transition to retirement, once the fund starts paying a pension, the earnings on the investments become tax-free, along with any money taken out of the fund. In effect, it creates a zero tax environment because the contribution forms part of the ‘non-taxable component’ within super. If you transition before age 60, this portion of income should also be tax-free.

Power of property – can I buy property with my super?

One of the most popular methods to reduce tax is to buy an investment property. Under the right circumstances, the strategy of negative gearing not only can help cut your annual tax bill but it may also attract a capital gain. This often works best for high-income earners as gearing involves funding a purchase with debt. To reduce the amount of income tax you’ll pay, the loss will be deducted from your annual income.

The success of gearing an investment property also depends on making the most of depreciation and expenses. Therefore, it’s important to know what is deductible, what’s not and when to claim or pay for it. For instance, you can prepay interest on an investment loan up to 12 months in advance, then claim the deductions against your salary in the current financial year.

Whether you buy property within your super or directly will depend upon your personal financial circumstances and it is important to seek independent financial advice before you do anything. Every strategy can have different tax and financial consequences, and often property transactions are not easily reversible. Just make sure it’s right for you before you sign on the dotted line.

Another way to maximise spare cash is through an offset account on your investment mortgage. Not only can it reduce the interest you pay, it can also shorten the loan term. And you won’t have to declare the interest savings as income.

If you are looking to preserve your hard-earned dollars via tax-minimisation strategies you should seek expert advice before you buy property with super.

The Australian Financial Review publish their guide to the do’s and dont’s of property and super.

If you’d like to chat about finance, please contact us.

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Foreign investment and house prices in Australia can indeed make an impact but it’s not the only factor affecting the Australia’s property prices.

For example, money coming in from property investors from other Australian states and territories – as well as the fluctuating economies of those cities, states, and territories – are also impacting housing costs. Locals with equity in their current homes, who may be looking at buying more property, also play a role in driving up costs.

Recently, it’s primarily Sydney and Melbourne that have seen the biggest bump in property prices. The media often suggest it is due to international investment. When you look at house prices in relation to income, these cities are now two of the most expensive metropolitan areas in the world to buy a home. But it’s too easy to place all the blame on foreign investors. Experts say overseas investment is actually a relatively small percentage of the Aussie housing market.

What’s more, it’s only certain portions of the market – such as brand-new homes and units close to Australia’s CBDs – that are seeing the effects of foreign investment. These are the areas in which first-home buyers – who’d like to be near the cities, for work or convenience’s sake – are seeing the most competition from overseas investors. As a result, many are either having to shift their property search further outside the cities or looking at properties which require a renovation.

The fact that there is competition also points to a lack of housing supply in the Australian property market, which also drives up prices. In this regard, according to some reports, overseas buyers can actually help with housing affordability, because their investments stimulate the economy, which in turn provides employment and promotes the building of more homes to meet the demand.

Doing their research

The internet is another reason we’re seeing increased interest in buying Australian property. It’s not just internationally but also interstate (and inter-territory). These days, it’s so easy to go online for property information. Making information about house prices readily available and making it easier for foreign investment. You can find basically everything you need:

• Prices
• Glossy photos
• Virtual property tours
• Information on specific areas and communities
• Real-estate agents
• Mortgage applications
• Conveyancers and solicitors
• And more!

It allows investors from anywhere in the world to find a home for their money (i.e. foreign investment) at a higher rate of return. This is often more than they might otherwise get in their local market. In turn, this drives up house prices.

Foreign investment driving up house prices – Not always about return on investment.

When most people buy a property, they’re looking for capital growth. That’s when they look to urban centres, such as Sydney, Melbourne and Brisbane. But in today’s world, there are other drivers, too.

For example, there are a lot of people with a lot of money in countries with unstable political environments. They’re looking to put that money somewhere safer. They may want to purchase a property to provide a safe and secure home for their families. Or they may wish to send a child to Australia for a better education and opportunities. That child will need to be housed. Either way, foreign investment in Australia often has an effect on house prices. Finally, the Australian real estate market has a track record as a relatively safe investment, unlike, say, the volatile US share market.

The ATO publish more information about foreign investment in Australia too.

If you’d like to chat about finance, please contact us.

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