What to consider when purchasing an investment property
March 7th, 2012 | Accounting News, Consumer News, Financial Planning News, Legal News, Newsletter Features, Tax Advice and Updates
Purchasing an investment property is something that many Australians look to when trying to secure a second stream of income. An investment property, such as a holiday house, seems like an ideal escape during the holiday season and allows you to earn extra income by renting the place out. It also aids in preparation for retirement and allows you to make money from capital growth, rent and tax benefits. Despite these attractions, investing in property can be difficult and stressful if done haphazardly.
With so many properties on the market, which should you choose? The list of suitable properties will be subject to your price range. Begin a culling process by taking into consideration what areas are most likely to be secure, close to amenities, and have high rental income potential. The age of the property is also very important, as newer properties
tend to require less remodelling, receive greater attention on the rental market and offer depreciation tax benefits.
Above all else, trust your instincts. If you are unconvinced about a property it is always better to move along. An investment property is a long term commitment. Seek professional advice and be confident in your decision.
The Cost of Success
Standard expenses include council rates, cleaning and maintenance costs and any remodelling work that needs to be done. If considering a holiday property, the costs of maintaining the property to a rentable standard will be higher than for a standard investment property. It costs a great deal to purchase a property and transform it into something that you can rent out. All this must be paid for before you can expect to start earning a steady income from the property.
If you decide to rent the property out, you need to consider who will handle the management and marketing of the property. The services of a professional property agent will be another expense to consider when setting up a budget.
Make sure you understand the services they provide and the procedures they have in place to handle complaints, maintenance and other matters, as well as the payment and fee arrangements in place.
The cost of insurance will also need to be taken into account. It’s generally recommended that you have Building and Contents Insurance and Public Liability Insurance. You should also look into Short Stay insurance, which covers you for loss of rent in a variety of situations. This is necessary to protect yourself from some tenants who fail to pay rent that is owed to you.
Taking these costs into account, it may be possible to negatively gear your holiday property for strategic tax purposes. The Australian Tax Office does allow you to claim expenses for your holiday property, proportionately for the time that the property was earning income. For this reason, it is important to schedule and keep track of how the property is used in order to claim available deductions.
The expenses that are available to be claimed as deductions include advertising, bank charges, borrowing expenses, council rates, depreciation, land tax, property agent fees, telephone and water charges and travel undertaken to inspect the property.
Some expenses are also able to be deducted from the eventual selling price, which will reduce the capital gains tax owing. However, if your adjusted taxable income is greater than $250,000 and you are making losses on your holiday home, you will be unable to claim these losses.
Be sure to take all of this into account when delving into property investment. Here at The Quinn Group, our experienced team of financial planners, accountants and lawyers can assist you with personalised advice for your individual investment property needs. For advice about whether purchasing an investment property is right for you, contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.