Real Property Investment
Real Property Investment
Why do people use real property investment?
Investment in property is most important investment instrument in Australia, as you know the richest 200 peopleЎЇs wealth is based on the real property. Although property must be viewed as an illiquid investment because the transfer costs of properties are high and the selling period averages several months, according to steady profit return and low risk, many people buy in property to against currency inflation, and to compensate increasing life expense contrasted to decreasing social security after retirement.
Gearing basically means borrowing to invest. An investment property that's negatively geared is purchased with a loan that has an annual net rental income amount that is less than the annual interest paid on the loan, plus the deductible expenses associated with maintaining the property. You get tax benefits by being negatively geared as you are able to deduct the costs of owning an investment property from your overall income. The biggest part of this deduction is the interest portion of your mortgage, but you can also claim such expenses as property management fees, loan costs and repairs.
Because negative gearing deductions offset your income, they are most beneficial to high-income earners. What this means is the more you borrow, the more interest you pay and the bigger your deduction. While everyone wants a large tax deduction, you shouldn't over commit yourself in order to get one. You still have to make the mortgage payments and those lucrative tax benefits don't arrive until the end of the financial year. In periods of low inflation, the benefits of negative gearing are usually negligible. (Case study: Mr. Bill teaches accounting in TAFE. He is interested in a 2 bedrooms unit in Parramatta, which costs $360,000. His annual salary is $50,000. He gets $376,190 mortgage at 6.29% p.a. from Wizard home loan, calculate how much money he should spend weekly to obtain this property.)
Capital growth is the money you make as the value of your property appreciates. The larger cities ЁC especially Sydney and Melbourne ЁC have enjoyed occasional boom periods that have seen many homeowners with properties that have sometimes doubled in value during these times. While there's no guarantee your property will gain in value, historically property has experienced steady growth.
- Full stamp duty exemption for properties valued up to $200,000 for metropolitan areas and $175,000 in country NSW
- Stamp duty concessions on a reducing scale for properties between $200,000 and $300,000 in metropolitan areas
- Stamp duty concessions on a reducing scale for properties between $175,000 and $200,000 in country NSW
The original First Home Owner Grant
The First Home Owner Grant Scheme is a joint Commonwealth and NSW Government initiative to help first homebuyers.
No tax is payable on the First Home Owner Grant. Eligible first homebuyers can receive the grant regardless of their income, the area they are planning to buy / build or the value of their first home. To be eligible for the additional $7 000 grant until 31 December 2001 or the $3 000 grant after 1 January 2002, you must first be eligible for the original $7000 grant. Additional grant for new housing
An additional $7000 grant for contracts made between 9 March 2001 and 31 December 2001 OR an additional $3000 grant for contracts made between 1 January 2002 and 30 June 2002
Most banks are active lenders in both the home mortgage and the business finance market. Mortgage managers/originators are non-bank lenders such as Aussie Home Loans, RAMS Mortgage, and Wizard. Home loans are able to be offered at lower rates than standard variable bank rates because funds are pooled outside the banking system, used directly as security for fund-raising in the money market, and the absence of an expensive branch infrastructure results in lower operating costs. Mortgage brokers represent a range of banks and other lending institutions and assist the consumer shop around to determine the most appropriate lending package for their needs.
What and where the property is invested?
As you want to benefit from as much capital growth as possible, the first rule is to buy in a growth area. Experts define suburbs located up to 10 kilometers from a city's central business district as likely to being a growth area. The best strategy is to visit a number of areas to get a feel for what they offer. As you will be renting out the property be aware of what tenants look for when they rent such as access to transport, shops and leisure facilities. An attractive property in a sought-after area will also ensure strong rental returns and ongoing tenancy.
While owning a house may be nice, units are far easier to rent out. They are also easier to maintain there's no lawn to mow, and when things go wrong in the building such as flooded pipes, any expense is shared among the other owners.