The key to this is the investment. At least with Property it’s bricks and mortar and historically over the years this has only gone up. The only way people today can afford property is to borrow against the asset and hence leverage the realised return against the cost of the debt – this is what makes you the money.
If understood and correctly used, debt should be considered a powerful tool that is used to create wealth rather than act as a burden.
You must understand this: There is a big difference between the cost of a family home and an investment property.
With the family home, there is generally only one person who pays the bills and that’s YOU! However, an investment property is different because the tenant and the taxman pay most (and eventually all) of your bills; including interest and insurances. Your contribution is made only after they have contributed their share.
If you are in the higher tax brackets, you may be surprised to learn that your contribution could in fact be NIL.
Based on the above, the idea that you cannot invest in property may be more of a perceived problem rather than being an actual problem.
There is no provision within the Taxation Act which allows you to complete a standard ATO form (Form 15-15) allowing you to boost your cash flow through reduced PAYG tax instalments. This means you don’t have to wait until the end of the tax year to receive your refund.
Subject to your current equity position, we can show you how to manage any (and all) cash flow shortfall so that the negative cash flow impact on your take home pay could (literally) be zero!
If you currently have equity in an existing property, this answer could change your financial future forever.
Here’s why… a deposit is generally considered to be a cash payment made to the vendor of a property until settlement and signifies your equity in the property to a lender.
However, a cash deposit is not necessary if you have sufficient equity in your own home. You can temporarily use the equity in your home for the deposit on an investment property (and even the borrowing costs). As the value of your investment increases, the need for your other equity is diminished.
NB: Another person’s equity may possibly be utilized to assist your leverage into an investment property. The most likely examples of this type of situation would be when a parent wants to help a child get a head start, or there is a joint venture arrangement between two non-related investors.
The important point to consider here is that your tax refund in part buffers any increase in interest rates. Like any business, if your costs increase you will pass them on to your customer, which with investment property is your tenant.
Generally speaking, The Reserve Bank of Australia increases interest rates in response to increasing inflation in the economy. In an inflationary period, your rents tend to increase which reduces the negative impact on your cash flow. What’s more, you can fix the interest rates to ensure you can budget successfully and insulate yourself against any possible rises.
Yes, we are familiar with these stories as well. But we can safely say that they have never happened to us… or to our knowledge – any Beachsea client.
But hey… it does happen, so here’s what we would recommend you do to cover yourself:
Get landlord’s protection insurance, which is usually less than $250 per year and…
Plus… bad tenants are usually attracted to specific areas. With very few exceptions, we only get involved with brand new property (so you can collect maximum depreciation benefits) and in suburbs that attract quality tenants. You will find these properties will be in the median purchase & median rental price range of the local area. Market demand tapers off at each end (ie. executive and lower socio-economic) but will be stronger in the middle range.
So the odds are on your side because:
And of course, once you get a good tenant into your property… you need to make it your mission to treat them like your best asset.
Are you confused about where and what to buy in order to get the best deal? Well, who isn’t?
Mentoring: By now, you would have noticed that we certainly take the time to educate you about the opportunities and pitfalls that one faces when investing in property. We believe in free education – so that you can make your own decisions – even if you decide not to buy through us.
Research: There are a number of large companies in the market place that will build a development and then sell off hundreds and hundreds of units or townhouses. Obviously, they have a vested interest because they need to sell their properties in order to make a profit. Being a boutique company – We are able to do things a little differently. How? By selecting the specific developments we feel are in the right areas for you to get the maximum rental return and capital growth from your investment. And we can tell you right now – that we turn back many, many more developments that we take on. And clearly, we couldn’t do it we didn’t.
Walk the talk: We are investors ourselves; not self proclaimed gurus – rather pretty regular people following a well worn, tried and proven path that our mentors have laid before us. Believe us… if we can do it, anyone can!
BEACHSEA New Property Specialists |
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