Property Investment

Becoming a property investor

The first step is to determine your goals and dreams, then structure your financial situation accordingly. Many people use investing in property as a means of superannuation, a nest egg for their future years.

You need to determine what is the maximum you can borrow based on your current commitments. Your Mortgage Options broker can do this for you. An important point to note is the rental income that will be generated by leasing the property as a large proportion of this will be added to you income to establish your borrowing capacity.

The deposit and transaction costs to purchase an investment property are similar to purchasing a house to live in. The costs include, stamp duty on the purchase (the largest cost), stamp duty on any mortgage, your own legal fees as well the lenders fees which may include application fees, valuation fees, legal fees. Again, Your Mortgage Options broker will be able to give you assistance in working out these costs.

Choosing a purchase structure

Who should own the investment property? Should investors purchase real estate in their own names, or jointly with their partner? Perhaps a company should own the property. Some investors use trusts, so that the income generated by their property can be distributed to a number of beneficiaries.

Some of the structures are:

• individual ownership


• partnership


• company


• discretionary trust

Negative gearing

The attraction of negative gearing is that it can be used as a tax-saving device. The investment is "negatively geared" if the expenditure exceeds the investment income, resulting in a loss (which is then tax deductable). The investor relies on the capital growth of the property, over time, to make up for the losses and to make a profit. It should always be borne in mind, however, that striving to save tax can be counter productive if the investor loses sight of the greater goal. It doesn't make sense to deliberately lose money in order to reduce tax.

Of course, any investment strategy that invloves negative gearing should be discussed with an accountant before any firm decisions or commitments are made.

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Tax benefits

You can enjoy the benefits of negative gearing an investment property by opting to reduce your weekly tax expense or by receiving a lump sum refund via your tax return.

You can claim some expenses against your rental income including:

• interest expenses


• borrowing expenses (e.g. loan application fees, legal fees, search fees, valuation fees)


• depreciation on the building as well as furntiure and fittings


• ongoing expenses (council and water rates, accountants fees, insurance premiums, advertising for tenants)


• travelling expenses for maintenance inspections


• repairs

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Capital gains tax (CGT)

Capital gains tax is the term used to describe the liability to pay tax on the profit made through the sale of an income producing asset that was acquired after 20 September 1985. A person's principal place of residence is exempt from capital gains tax when sold. However, where an investment property sells for more than its purchase price, it is likely that capital gains tax will be payable. When an investment property is sold, the profit is added to the investor's taxable income in the year of sale. For more inforamtion contact your accountant or go the Australian Tax Office at ato.gov.au

For more detailed information on what can be claimed please see your accountant.

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Using the equity in your home

If you currently own your home and have experienced an increase in property prices around your area or you have paid off some of your mortgage, you may find that you have sufficient equity in your home to borrow again to use as a deposit.

The information provided above touches on only a few issues relating to property investment and does not in anyway purport to be a comprehensive overview of the subject.

For more information please contact us and our brokers will be able to assist with any questions.

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