Investment Property Adelaide

Investment Property Adelaide

Buying an investment property in Adelaide  has long been considered a path to a secure retirement for Adelaideans and Australians from other states and territories. You can make this more likely by going about it in the right way. Buying an investment property can generate capital growth (historically a doubling of the value of a property over 7 – 10 years) as well as rental income.  (These increases in property values are generally unlikely to be returning to South Australia any time soon.  In fact some well-informed people will tell you that South Australian property prices are in decline). There are also considerable tax advantages to be gained through negative gearing. However, buying your first investment property is not something to be rushed into. “Fail to plan, plan to fail” has never been truer than when buying your first investment property.

So who should invest in property? Apparently the typical residential property investor in Australia is married, owns the rental property in partnership with a spouse, is 45 years of age and was born in Australia. Only six per cent of the adult population of Australia owns a residential investment property and these investment properties provide housing to over one million Australian families.

Seventy eight per cent of the 6% of Australians who are investors own one property only and I think the banks and other lenders are partly to blame for this with practices such as cross-securitisation or cross-collateralisation and the serviceability calculators they use to determine whether an investor can afford to buy further investment properties, which admittedly they can’t do much about. However, there are ways to get out of cross-securitisation and to overcome the limitations of an existing lender’s serviceability calculators if your existing lender is not being co-operative – just call if you would like to discuss how.

Thirteen per cent of investors apparently own two investment properties and only nine per cent of investors (or 0.54% of the adult population of Australia) own three or more properties. Are these property investors wealthy? Apparently not, with 66% having a taxable income of $38,000 or less. (I think the keyword in this is “taxable”).

With regard to the income figures immediately above, the skill and experience acquired whilst managing a household budget on a lower income could have prepared you better to become a first time property investor than higher income earners who have at the same time have become higher spenders. Many such bigger spenders find in later life that they do not have adequate Superannuation or savings for retirement or to cover themselves if faced with redundancy, never mind a worthwhile investment plan.

Lower income earners are often the ones who are able to knuckle down and save. Careful budgeting, motivation and discipline are important qualities for successful investing in property. If you have had good practice in making your dollars stretch further and have been accustomed to living within your means, you might have what it takes to become a successful first time property investor.

Lower income earners also often have a more realistic view of the investment risk. They know they need to do something to get a better financial future. Many people are scared to invest in their first investment property because they do not like having debt; but as experienced property investors know, there is good debt and bad debt. For example, bad debt could be a loan on a brand new car that is a depreciating asset as soon as you drive it away from the showroom. Good debt however is the type of debt you enter into for an investment property that over the long term, usually seven to ten years in Australia, will double in value; and if the taxman and various tenants pay the lion’s share of the interest and capital repayments on your debt, then that is surely “good debt”.

There is a common but incorrect belief that 20% of Australian citizens invest in property and conversely that some 80% of Australians need some form of government assistance on retirement. In reality only some 6.5 of Australians buy an investment property and only a quarter of these buy more than one.

Some tips to get you on the investment property ladder.

  • First and foremost speak to your accountant or financial adviser to determine whether it is a wise move for you to invest in property. Get your adviser to explain about negative and positive gearing and what it will mean for you.
  • Speak with a mortgage broker and find out how much you can borrow – which will vary with the value of the property you are looking to buy as a more expensive property should presumably provide a greater rental income which is taken into account when determining how much you can borrow.
  • Get rid of your credit cards and any other loans you may have. If you already own a property, refinance and pay off your credit card and other debts by refinancing and consolidating your debt into one loan if possible. If you are ready to buy your first investment property, consolidate your existing debt at the same time as refinancing to raise the deposit for your first investment property.
  • Get an RPData Suburb Report – FREE from me, just let me know which suburb(s) and I will email them to you. Look for an area with a high percentage of renters. I can provide such information; suburb by suburb – just ask. I can provide RPData reports which cover many aspects of every South Australian suburb, with demographics, schools, shopping facilities, hospitals, transport links, etc. Look for the suburbs with the highest percentage rental returns. Demographics can tell a story about the type of people who live within a particular suburb:
  • Are they generally young or old?
  • Do they prefer to rent or own?
  • Are they family households, group households or lone persons?
  • What is the average income level or income range? etc.

For many buyers, understanding the overall look and feel of a suburb or neighbourhood is essential, particularly if they are buying from some distance away. Other demographic information such as population growth can provide invaluable insights into future market conditions.

Population growth can indicate the likely future demand, with areas of strong growth expected to be in high demand from buyers and developers.

  • Buy a property you would like to live in yourself (you will then get a better class of tenant and perhaps less problems) but do not overextend yourself. (I think over-extending yourself would be difficult anyway with the servicing calculators the bank use and the regulations in place about “responsible lending”).
  • Once you have found a potential investment property get building and pest inspections carried out. Do not try to economise by cutting out what you think are unnecessary expenses such as this or you may live to regret it.
  • Employ the services of a solicitor or conveyancer as early in the process as possible. Find one yourself to avoid “conflicts of interest” with the Real Estate Agent.
  • Employ the services of a Quantity Surveyor to maximise the tax relief you are entitled to and improve your cash flow as a result. This is particularly true with new properties.
  • Find and use a good property manager. This is another expense but again one that you should not avoid.
  • Take out Landlord’s insurance and check their policy for details of excess regarding claims. You may find cigarette burns in carpets in four or five rooms after a tenant moves out. Some insurers will have the attitude that each burn was a separate “incident” and thus a separate claim. You excess could be $300 per claim so one insurer would ask form $1,500 contribution from you whereas another (I know one) would have the attitude that this is one claim so only one $300 fee.
  • Insure yourself as much as possible against critical illness, for income protection, death etc. so as to not leave yourself or partner in difficulties should the unthinkable happen.
  • Get immediate tax relief in your pay packet now rather than wait for the end of the year by completing a PAYG Withholding Variation.  The main purpose of varying the rate or amount of withholding is to ensure that amounts withheld during the income year best meet your end of year liability. An example is where the normal rate or amount of withholding would lead to a large credit at the end of the income year because your tax deductible expenses are higher than normal. Please note; Variations are issued at the Commissioner’s discretion.

Some Other Pointers.

  • Make increased payments on your mortgage. Some think that simply by paying their mortgage weekly or fortnightly they will somehow reduce the length of their loan and save interest. This is not strictly true. If you pay half the monthly repayment every fortnight then yes, you will pay off the loan quicker and save interest as you will be making the equivalent of an extra month’s payment each year as there are 26 fortnights (the equivalent of 13 monthly payments) in a year instead of twelve monthly payments. Beware that two months of the year you will make 3 fortnightly payments instead of two. This may not be convenient if one of those two months happens to be December or January when household expenses can be at their highest. Perhaps it would be better to make higher monthly payments and spread the extra payments over the year evenly rather than two random months during the year when you might not be expecting it.
  • If your first property purchase is an investment property you could still be entitle to the First Home Owner’s Grant and Bonus Grant when you come to buy a property to live in yourself. Capital gains on your first investment property could, by refinancing, provide the deposit for your first home at a later date, or a second investment property.
  • You can borrow over 100% of the cost of your first investment property by getting a close relative to go guarantor. When your investment goes up in value, you can refinance and release your guarantor from their guarantee.
  • You can buy a property with others, perhaps friends, to get your feet on the investment property ladder.
  • You can also use the equity of an existing property you may own, your home, by refinancing to raise the deposit required to buy your first investment property.
  • Have an interest-only mortgage on your investment loan and use any spare cash to either reduce other more expensive credit, such as credit card balances, car loans etc. If you have an existing home, pay off that loan first before the investment property, as you can claim tax relief on the investment property interest but not on your home loan. This will also server to increase the equity in your home which may then allow you to refinance and buy a second investment property using that equity. Of course, it makes no sense to have a loan larger than you need on an investment property as there is no sense in paying out 70 cents in interest to save, let’s say, 30 cents in tax. Once you have paid off all other debt, then by all means pay off your investment property loan – or live a little instead.

 

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RPData are happy for me to provide FREE reports on properties by entire suburb or on an individual property basis.  Find out not only how long a property has been up for sale, but what it sold for last time it was on the market and by how much, if anything, the price has been reduced this time on the market.  You could save yourself thousands of dollars as some of my previous clients have found.  For your FREE RPData report(s) or to learn more about mortgages for first home buyers and investors call Vincent Woodall NOW on 0451 596 575 or send an email to

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If you need help getting a home loan or assistance with any of the issues covered on this site, please call me, Vincent Woodall directly on 0451 596 575 or you can send me an email to vincentwoodall@home-loans-adelaide.com or alternatively please complete and submit the enquiry form below.




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Find a home loan with someone you can trust and who will ensure you’re getting the right home loan for you. Vincent Woodall. 0451 596 575 or alternatively send me an email to vincentwoodall@home-loans-adelaide.com .