Frequently Asked Questions

A residential investment property is a House, Townhouse, Apartment or Unit which serves as a primary purpose of rental income and is not intended for the owner to serve as a personal place residence. Residential investment property allows investor to create extra cashflow apart from regular income and opens door for tax deductions benefits.

The term ‘negative gear’ refers to a situation where your cash outflow to maintain an investment exceeds your cash income from the investment itself. For example, with a residential property, if the mortgage payments on your property exceeds the rental income from the property, it is said to be negatively geared. In other words, the investment income is negative, which allows you to claim the interest costs on your mortgage or loan as a complete tax deduction. Recent studies demonstrate that negatively geared rental property remains the most tax efficient investment vehicle.

While the concept of debt may seem disturbing, the reality is we live with debt of one form or another, and few people attain true financial independence without some form of leveraging. In fact, most Australians are more comfortable with debt then they realise, through the mortgage on their home, or perhaps the loan on their motor vehicle or their furniture. Many of us are in “debt” to the tax man by virtue of the fact that we earn an income. There are two key principles that will ensure security when it comes to borrowing:
• Only borrowing to purchase appreciating assets
• Make sure your debt is manageable.

The answer to this question can best be demonstrated by looking at the financial circumstances of the average Australian family. With interest rates the lowest they’ve been years; many families are focused on paying off their own home as quickly as possible. For example, a couple may be trying to reduce the term of their loan by paying back extra dollars each week. If one partners gets sick, or losses their job, they may be placed in the position where there is no redeemable loses their job, they may be placed in the position where there is no redeemable asset base to turn to but their own home. If that same extra money a week were invested in a second house, the risk may have diminished. The advantage of investing in a redeemable asset base is that, if something happens, the family house is not put on the line – there is something else to turn to. Life or trauma insurance and income protection policy will replace 75% of a person’s regular income while that person is unable to work.

Residential property offers a lot of flexibility. Today if you need cash in a hurry you can draw the equity off your own home simply by re-financing. If, in the worst-case scenario, an income stream is cut off an extended period and there is no other redeemable asset base to turn to, the investment property can be sold to pay back the loan.

Interest rate rise are a great sign of a strong economy, which is an indicator of solid capital growth. As an investor it is the capital appreciation – the amount your property rises in value – that is your most powerful means of wealth creation. In addition, the combination of interest rates ruses and the housing shortage will lead to rising rental income – so it will be your tenants who will help pay any increased interest payments. When interest rates rise there are better opportunities to Negative Gear your property meaning greater Tax benefits.

It has been our experience that, provided a building is in a reasonable state of repair, and you are not a greedy landlord, you can find a tenant for it. This is particularly true of the lower end of the rental market. If there is a protracted vacancy rate (for example, anything more than two weeks) it may be a matter of adjusting the rent slightly. With the right property management in place, however, vacancy should not be a problem. A good manager – in the form of either on-site management, or a professional property manager – should have no difficulty finding suitable tenants, with whom they can foster a long-term relationship.

• A comprehensive insurance policy will protect your property against most forms of damage. The cost of insurance is minimal and is tax deductible.
• With effective property management, tenant difficulties should be non-existent or recued to a minimum.

Maintaining control of your investment, does not mean active involvement. Once a property has been purchased, an investor’s involvement can be reduced to a minimum using an effective property manager. The good property manager is important to save investors time, money and tenancy headaches. Managers can assist in some or all the following areas: Maintenance, improvements, tenant screenings, rent collections, lease preparations, advertising, inspections, tenant relationships. When selecting a professional manager, it is important to look for someone who is not only a good people manager, but also someone who runs rental rolls like he run his own business.

Cash is not always necessary as a deposit when there are sufficient assets to borrow against. For example, the equity in an existing home can be used to finance the purchase of an investment property and its associated costs.