investsmart property free 2014 report

8/10/2019 Investsmart Property Free 2014 Report

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INVESTSMARTP R O P E R T Y

8

STEP GUIDE

FOR FIRST TIMEINVESTORS

CHOOSING

YOUR INDUSTRY

PROFESSIONALS

CREATING A

PROPERTY

TAXATION &

DEPRECIATION

w w w . i n v e s t s m a r t p r o p e r t y . c o m . a u

T H E F R E E I N V E S T M E N T R E P O R T

Copyright 2014 InvestSmart Property Group. All Rights Reserved. Terms & Conditions.

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20142014BE T REP RTBEST REPORT


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ForewordWhen it comes to reaching retirement goals, many people,just like you, are already ahead of the game and most of

them are doing it with little effort.

Have you ever wondered how?

The answer comes down to three little words: property, knowledge and assets. Master thesefundamentals, and you too could also be on your way to success.

In this eBook well share with you some of what we know about investment properties. In thefollowing pages, well outline the strategies, principles and processes essential to follow dilligently

in order to succeed in property investment.

Well also take a look at some of the main risks of property investment, and guide you through someof the dangers associated with purchasing an investment property.

Information provided on this document is general in nature and does not constitute financial advice. InvestSmart Property

Group will endeavour to update the information provided on this document as and when required. However, information

can change without notice and InvestSmart Property Group do not guarantee the accuracy of information on the

document, including information provided by third parties, at any particular time. Although every effort has been made asto the accuracy of the information provided on this document, you must not rely on this information to make a financial

or investment decision. Before making any decision, it is recommended that you consult a financial planner to take into

account your particular investment objectives, financial situation and individual needs. InvestSmart Property Group do not

give any warranty as to the accuracy, reliability or completeness of information which is contained in this document.


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Contents

Why invest in property? .................................................................................................................... 4

Creating a property Investment Strategy.....................................................................................5

Choosing your Industry Professionals ..........................................................................................6

Finding an Investment property ..................................................................................................... 7

Step 1 Finance .................................................................................................................................8

Step 2 - Location ................................................................................................................................9

Step 3 Value .....................................................................................................................................9

Step 4 Infrastructure .................................................................................................................... 10

Step 5 Rental Return .................................................................................................................... 10

Step 6 Quality and integrity of the developer ....................................................................... 10

Step 7 Designs and Finishes .......................................................................................................11

Step 8 Legal Structure ...................................................................................................................11

Financing your Investment property ............................................................................................12

Capital Growth ...................................................................................................................................13

Which Investment property is right for you? ..............................................................................14

Buying a new property.....................................................................................................................16

Understanding Negative Gearing .................................................................................................17

Understanding Positive Gearing ...................................................................................................17

Managing your portfolio ..................................................................................................................18

Taxation and Depreciation ............................................................................................................ 20

InvestSmart Property what can we do for you? .....................................................................21

Why choose InvestSmart Property? ........................................................................................... 22


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Why invest in

Property?The average Australian property cycle is 7 10 years. If you are serious about propertyinvestment, this is the time frame in which youshould aim to create a positive cash flow fromyour investment.

The other great thing about property is that the

Federal government has continually supportedproperty investors through tax incentives.Investing in residential real estate can give youaccess to great tax benefits and capital growth.

Many investors see property as safer alternativeto other forms of investment. This is becausegenerally, the residential property marketis considered to be less volatile than otherinvestment platforms such as stocks and shares.

Investing in residential property also allows youto start at a level that is comfortable for you.It may be that your first purchase is an entry

level investment such as a tenanted townhousewhich you can use as a stepping stone to createfurther wealth.

Many property investors start out small anduse their investments as a way of accumulatingwealth so that they can buy their dream home,

or retire sooner.

Residential property investment has the flexibilityand wealth-creation potential to suit most investors regardless of which stage of life they are in. Ifdone properly, property investment is an excellentway to reach your goals and create a rewardingand secure retirement nest egg.


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Creating a property

Investment Strategy!To safely acquire wealth through property, you need aconsidered strategy which is backed up by careful research.This means taking your time to think through your optionsbefore you put down your hard earned cash.

Generally, people who are interested in investing in property take one of three possible paths:

Engage professional advisors

(a good idea so long asthey are acting in your best

inerests).

Act for yourselfon allinvestment matters (fine for

seasoned investors, but makesure you know what youre

doing and have plenty of timeon your hands).

Take investment advicefromfriends, family or acquaintances(Not recommended we hear

horror stories of this optionevery year).

If youre serious about creating

real wealth through property itsimportant to think strategically.Its great to have big goalsand burning ambitions, but itsimportant that you dont get

ahead of yourself.

Thats why when you look for an investment

property its a good idea to look for aninvestment option that will service your needsnow and into the future. Setting realistic goalsthat can be achieved at a sustainable rate is animportant first step. So too is working on yourown financial discipline. As a serious propertyinvestor you will need to manage your ownhousehold income and expenses as well as theincome and expenses of your property portfolio.

The simple truth is that creating real wealth

through property doesnt happen by chance.Wealthy property investors use a carefullyplanned strategy that involves investing in qualityproperties that are well positioned in growth areas.


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Choosing your

Industry ProfessionalsAs a property investor, one of the first things you will need to think about is which professionals you

will use to make up your property investment team. If youre new to property investment, it can be alittle confusing to figure out who does what within the property investment space.

Lets think this through.

Real Estate Agents

When a home owner, developer or spec builder uses a real estate agent, that agent acts as a sellersrepresentative. This means that they are legally responsible to the seller to get the best possiblesales outcome. Real estate agents and display home consultants are usually limited by their local

franchise area and how much stock they have access to.

Buyers Agents

A buyers agent is an agent who acts for the buyer. They source a selection of properties thatmatch the buyers needs and represent the buyer throughout the purchase process. This includesnegotiating the best possible terms and conditions from the seller. Buyers agents usually workclosely with property developers and stock wholesalers to find properties under commercial termswhich are not offered to everyday retail buyers.

Your investment team

It is crucial that you have a trustworthy selection of support professionals on your investment team.These professionals may include:

Licensed finance broker

Licensed investment property advisor

Solicitor

Insurance providerProperty leasing manager

Quantity surveyor

Accountant

A financial planner if you are investing through a self-managed super fund

Remember: If you intend to conduct your own due diligence, you will need to project manage anyoutsourced service providers. This will mean coordinating their services in such a way as to ensurethat there are no gaps left in the process. Leaving things undone will cost you money and time.


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Finding an

Investment propertyFinding the right investment property for you isnt easy. Before you jump in, make sure that you followa strict due diligence process. This will help to ensure that your investment strategy stays in-tact.

At a bare minimum, the following checklist items should be carefully considered:

Finance What is yourborrowing power and which is

the right mortgage for you?

Location is this property ina place where people want torent?

Value is this propertyavailable at current marketvalue or less?

Rental Return can youachieve a minimum 4% rentalyield?

Infrastructure are majorinfrastructure elements such as

public transport, schools andrecreation facilities nearby? Ifnot, are they planned?

Design and Finishes willthe design and finishing of theproperty meet tenant demand?

Quality and integrity of the

developer Check out other

projects that the propertydeveloper has worked on. Arethere any delivery risks?

Correct Legal Structure isthe legal structure suitable for

you, your family and your taxposition?

Achieving success in property

investment requires you

to understand all of these

elements and how they work

together to create a valuable

property investment. On the

following pages we will go

through these in more detail.


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Step 1 - Finance

When it comes to investment properties, not all mortgages arethe same. While there is a vast array of lenders in the market,

choosing the right one for you takes a little time and patience.

Lets have a look at some of the key concepts that you will encounter when you look for finance:

LMI Lenders Mortgage Insurance is oftenapplied to loans which gear above 80% of theproperty price. LMI can be quite expensive. Ifyou are going into property investment with asmall deposit, make sure that you understandthe impact of LMI on your loan.

Intended timeline Property investment isabout time. When you are looking for finance,think about the timeline of your investment andyour options for fixed interest facilities.

Rental

Return

Location

Developers

Quality

Value

Finance

Legal

Structure

Design &

Finishes

Infrastructure


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Step 2 - Location

Think very carefully about the location of your investment property. Take the time to considerthe facts about where people want to rent. Remember, this is probably different from where youpersonally want to live, so keep that out of the equation. Look for a place that is well located tosurrounding infrastructure. Aim for a property that has good access to:

Public transport

Schools

Cafes, restaurants and entertainment venues

Shopping centres

Hospitals

Parks and recreational areas

A sought after geographic feature such as a beach

Step 3 - Value

Its important to buy your investment property at the currentmarket value. In order to do this you can:

Consider independent valuations and reports that are accepted by lenders. These canusually be sourced from well-known valuation companies

Consider historic growth reports from well-respected market commentators

Investigate median house price reports for the area in which you are investing

Consider value in current market place compared to other offerings that are directlycomparable

Paying down your loan Looking into theforeseeable future, is it likely that you will bereceiving a lump payment or major windfall withwhich you can pay down your loan?

Interest rate options Think about whether it

suits you to structure the loan as interest only orprinciple and interest.

Equity and offsetting Consider whether youhave more equity in your existing portfoliothan you need. If so, is it worth offsetting yourequity into a re-draw facility rather than simplyborrowing less?

Tax position Its worth thinking about how a

different tax position will impact your investmentcapacity in terms of cash flow.


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Step 4 - Infrastructure

The importance of good infrastructure in the area should not beunderestimated. Before you make your investment, investigateany existing and planned infrastructure. To do this you can:

Visit Council or Government websites

Look on a map to determine how close the property is to major arterial roads

Check for any planned public transport improvements

Check any intended Government or Council spending on the area

Find out what other developments (of all types) are planned

Utilise property investment specialist with all of above research.

Step 5 - Rental Return

Aim for a rental return of at least 4% - preferably more.Benchmark your rental return with a simple equation: one dollar per thousand per week. Put

simply, if you have a $350,000 investment property, the rental income would ideally be at least$350 per week.

Look for areas with historically low vacancy rates.Choose an area where rental demand comes from multiple employment sectors (so if one sectorcloses or moves off-shore, the demand for your property will still be strong). Talk to local propertymanagers and onsite managers.

Step 6 - Quality & Integrity of the developerDoing early checks on your intended property developer is definitely worthwhile. Take a look at theirpast projects, and find out if there are any risks that you need to be aware of. You might also like to:

Investigate the architect and builder of the property

Look at past projects to get a sense of architectural finishes

Dont be distracted by the glossy brochures and incentive gifts such as free holidays

Visit the site of a new development to inspect the location and surrounding areas

Ask the builder and developer for testimonials from people who bought into their past projects


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Step 7 - Design & Finishes

Think about whether the design and finishes of the property will meet tenant demand in the area.To do this you will need to ask yourself the following questions:

Is the property currently meeting tenant demand?

Will it meed tenant demand in the future?

Is the property more suited to an owner-occupier?

Is there diversity within local property types?

Will the property have a high depreciation rate?

Is it affordable to maintain the property?

Step 8 - Legal Structure

When it comes to investment properties, having the right legal structure in place is crucial. Gettingthis right at the beginning will make it much easier down the track when you come to makedecisions around inbound costs, selling costs, and the departure of co-owners. Tax concessions,pension benefits and your personal income needs should also be considered.

The most common legal structures for property investment are:

Individual

Company

Company as trustee for a trust

Joint tenancy or tenants in common

Self-Managed Super Funds

Its a good idea to get legal advice on your intended structure. Having the wrong structure may

affect things like finance approval, tax planning and retirement benefits.


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Financing

Investment propertyGetting the right finance in place at the beginning can literally save you thousands of dollars overthe life of your mortgage. The obvious place to start is by conducting a careful assessment of yourcurrent financial assets and resources. Take the time to clarify important points such as:

Your intended financial institution

The amount of pre-approved finance you will need

Any other advice you want to seek from professionals such as lawyers and accountants

By getting this information together at the beginning you will be able to focus your energies onchoosing the right investment property for your portfolio. It will also help you to avoid frustrationswith finance refusals. Even more importantly, it will help you to avoid going into mortgage stressafter your purchase.


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Financing

Capital GrowthGenerating good capital growth from your investmentproperty comes down to two key factors; location and price.

As not all suburbs have the same levels of capital growth, you need to decide on an area that hasstrong growth potential. Do some basic research and look at the key characteristics behind wellperforming areas.

Its likely youll notice that the suburbs that have performed well in the past are those with goodinfrastructure and are close to local facilities and transport options. This still applies today.

A history of strong capital growth is often a good sign of future growth for an area. Areas with low

vacancy rates and a limited supply of properties are also known to have higher capital growth rates.


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Which Investment

Property is right for you?When you start thinking about property investment, there are generally three major options:

Traditional house and land packages

Apartments

Townhouses (typically low rise buildings with courtyards).

Each of these may be purchased as:

A completed property (ready for immediate settlement).

Custom built (as a property that is made to order).

Off the plan (where you buy an apartment based on the plans and the building happens in

the future).

Lets take a moment to think about the advantages of each option:

Buying a completed property

When you buy a completed property you immediately know what the value of that property is.Having a known value lowers your investment risk. Completed properties may also have a knownrental return, and could have tenants already in place.

Another benefit of buying a completed property is that you can claim tax benefits on your investmentimmediately after the property settlement. Settlement terms are usually quite short and take only 1 -2months to complete. Completed properties are often favoured by Self-Managed Super Fund investors.


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Buying off the plan

Buying a property off the plan is a great way to get a low entry price into the property market. Manyinvestors choose to buy off the plan as the entry cost at plan stage can be much cheaper thanbuying into a development once it is completed.

Off the plan buying can also offer lower barriers to entry for investors as traditional deposits are notalways required. Some developers will accept deposit bonds to secure the property instead. As thesettlement for the property will be in the future, buying off the plan also allows investors to structuretheir portfolio mix in advance.

Off the plan purchases can be used by property investors as a way of creating larger portfoliosfaster however this requires a mix of strategies in order to be successful. When you buy an off theplan property you are also taking on the risk of future valuations. If the property decreases in value,it is up to the investor to make up the shortfall by increasing their equity contributions.

Buying a custom built property

Custom built properties give the purchaser the opportunity to customise the propertys build and fit-out.When you custom build a property, you initially only purchase the land, which means that you onlypay stamp duty on the cost of the land rather than the entire completed dwelling. This can save youthousands of dollars.


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Buying a new propertyWhether your investment property is already completed,bought off the plan, or custom built, buying new propertyhas its advantages.

When an investment property is brand new, the depreciation is maximised. This means that all ofthe internal fixtures and fittings plus building costs are depreciable for tax purposes.

When it comes to preparing your tax return, your quantity surveyor can help you prepare a reportfor your accountant. Its common for developers to provide a depreciation report in advance so thatyou can get a more accurate forecast of the real cost of your property.

Compared to buying a new property, established properties have higher maintenance costs andfewer claimable deductions.


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Understanding

-Negative GearingWhen the interest you are paying on your investmentproperty is greater than the money you are makingfrom that property, its called negative gearing. From aproperty investment perspective, negative gearing has itsadvantages.

Negative gearing is popular with Australian property investors because it allows you to gear yourfinancial losses through property against your taxable income. Put simply, your property losses are

tax deductable.

Negative gearing is especially popular with high income earners who are looking for legitimatetax deductions. The more money they borrow, the more interest they pay, and the greater their taxdeduction.

While negative gearing is a popular and attractive option, its important to remember that mortgagerepayments still have to be made on a regular basis. The tax benefits of negative gearing areavailable either at the end of the financial year, or on a monthly basis via a tax variation pre-approval

from the Australian Taxation Office.

Understanding

+Positive Gearing

Positive gearing is when your property is making moremoney that it costs. For example, if your rental income isgreater than what it costs to finance the property, it is said tobe positively geared.

Positive gearing can be achievable in a low interest rate environment (like we are in now). Someinvestors find that with a careful investment strategy they can make money on a property from dayone.

When financed correctly, a positively geared property doesnt need to cost you anything upfront especially when adjustments for tax and depreciation are taken into account.


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Managing

Your PortfolioIn investment as in life, things change. Interest rates rise andfall and your financial circumstances will change dependingon your work, family, and other investment choices.

The key to managing your portfolio is to keep it in line with your current financial and lifestylecircumstances. Often, its not worth trying to tough it out through hard times, especially when thereis an option of selling a property, paying down debt and stabilising your position.

One of the best ways of managing your portfolio is to ensure that you get off to a good start. Thisinvolves starting with an investment property that is within your means. Depending on your personalsituation and how the property performs, a second property can be added one to three years later.

When building a property portfolio, some people find it useful to alternate their investmentsbetween off the plan and completed stock. This allows them to spread settlement times into a moreachievable timeframe.


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For investors who are three to five years into their property

investment strategy, it may be worth considering selling.

This is especially the case if your property has experienced strong capital growth and is reaching thetop end of the market for that area. Once a property reaches its peak value in a particular area yourinvestment equity stops working as hard and it may be time to look further afield.

Selling an investment property that has reached its market peak can help you to avoid a situationwhere your equity begins to stagnate or go backwards.

Selling also has the advantage of providing enough equity to invest into two or more newinvestment properties in high growth areas.

Regardless of whether you chose a positive or negative gearing option, its important to think aboutinterest rates. How will an increase in interest rates affect your ability to service the loan? Interestrates are low today, however they wont stay at this level forever. You might want to set part of yourloan at a fixed interest rate for a period of time in order to avoid the risk of sudden interest raterises. Alternatively, you may choose to see what happens with interest rates and simply sell theproperty down the track if it becomes too difficult to service.

There are lots of different strategies for successful property investment. They key is to find whichone will work best for you. Whichever strategy you choose, its important to remember that propertyinvestment should always be approached as a business decision. If you become emotionally attached

to a property you could make costly mistakes.


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Taxation &

DepreciationTax depreciation and tax deductions are a great benefit toproperty investors. When you buy an investment propertyyou can claim depreciation on certain parts of the buildingincluding fittings and structural components.

Tax deductions are generally grouped into two categories: Revenue costs and Capital costs.

Revenue costs

Revenue costs are the costs incurred from earning an income through your rental property. Theyare usually classified as being either cash or non cash. Interest rates and expenses are the mostcommon form of cash deductions. They are deductible at the time the cost is incurred.

Non-cash deductions include depreciation and borrowing costs. These are claimed regardless ofwhether you paid out any money in a particular year.

Capital costs

Capital costs relate to any finance that you used for the purchase, sale or improvement of aninvestment property. While buying and selling costs are not deductable against income, they can berecognised once the property is sold and capital gains tax calculations have been finalised.


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InvestSmart Property

What can we do for you?Put simply, we specialise in transaction management.Why?Because most individual investors dont have thetime or the experience to complete property investment

transactions safely and professionally.

As transaction management experts we take the effort and confusion out of the residential propertyinvestment process. We do this by providing a full range of services including:

Cash flow analysis

Due diligence

Funding and leasing

Negotiation

Property acquisition

Research

Tax considerations

Tenant management

At Invest Smart Propertywe guide you to your goals

of wealth creation throughproperty.

Our proven expertise across a wide range of

investment property transactions makes us

an ideal service provider for investors who

understand the value of professional advice,

but dont have the time or expertise to safely

negotiate the process alone. Once your new

investment property is purchased, we will thenwork with you as ongoing property managers to

help you find and secure new tenants and keep

your investment on track.


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Why chooseInvestSmart Property?At InvestSmart Property Group, we provide top level service throughout the entire propertyinvestment process. We conduct careful research into growth markets and are skilled at identifyingvaluable purchase opportunities.

Access to great properties

Our close working relationshipswith leading propertydevelopers across a widerange of locations means thatwe have access to some ofthe best projects and masterplanned communities currentlyavailable. Many of these areavailable through us before

they hit the open market.

Careful due diligence

Each property approved byInvest Smart Properties hasundergone an extensive duediligence process. As partof this process we considerimportant factors such as highgrowth areas, current marketvalues and expected rentalreturns.

Understanding your goals

Understanding that everypersons property investmentneeds differ is also animportant part of what we do.Some of our clients are newto wealth creation throughproperty while others areseasoned investors with largeportfolios. Working with you to

determine what is best for youis what were all about.

Affordable market entry

Our diverse range ofinvestment properties covera variety of affordability levelsthroughout Australia. Thismeans that we can help youfind the property for yourindividual needs and goals.

No fee & no obligation

At no point in our dealings willwe ask you personally for a fee.We receive commission fromproperty vendors and funders.Our advisory work is alsoprovided without obligation toqualified investors.

To be a qualified investor you

simply need to have a suitableborrowing capacity and aninterest in property investment.Establishing your borrowingpotential is an easy process andwe can discuss it with you eitherin person or over the phone.


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Information provided on this document is general in nature and does not constitute financial advice. InvestSmart Property

Group will endeavour to update the information provided on this document as and when required. However, information

can change without notice and InvestSmart Property Group do not guarantee the accuracy of information on thedocument, including information provided by third parties, at any particular time. Although every effort has been made as

to the accuracy of the information provided on this document, you must not rely on this information to make a financial or

investment decision. Before making any decision, it is recommended that you consult a financial planner to take into account

i l i bj i fi i l i i d i di id l d I S P G d i

Get in touch!To make a time for an obligation free

assessment from one of our property

consultants please contact us today.

[email protected]

www.investsmartproperty.com.au

investsmart property free 2014 report

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