Why invest in property?

Investing in properties has many benefits when building long-term wealth. If you take the time and select your investment properties well, property can deliver good returns for long-term investors.

If you are thinking of arranging loans to secure an investment property, consult with your needs with us. We can also assist you in selecting a suitable loan that will help to minimise your risk and maximise your return.

Can I use the equity in my home as a deposit?

If you've owned your own home for a few years, you could have built up quite a bit of equity in your property. Equity is the value of an asset not subject to any lender’s interest. For example, a property worth $600,000 with a mortgage loan of $200,000 has equity of $400,000. Instead of finding a cash deposit to buy an investment property, you could use this equity as the deposit.

Will an investment loan be any different to my existing loan?

There are few differences between what you need to do to borrow for a property you'll live in and for one you'll rent out. Some lenders charge a higher interest rate for investment properties because their risk may be higher. But this may not necessarily be the case.

If you’re unsure how an investment loan would potentially impact your financial circumstances, contact your financial adviser.

What’s positive gearing?

You can also positively gear a property. This occurs when the investment income exceeds your interest expense (and other possible deductions). Note that you may be subject to additional tax on any income derived from a positively geared investment.

You should also consider any other costs involved when deciding on your investment property strategy. To discuss this further, find out more from your financial institution, financial adviser or mortgage broker.

What’s negative gearing?

A property is negatively geared when the costs of owning it – interest on the loan, bank charges, maintenance, repairs and capital depreciation – exceeds the income it produces. Simply put, your investment must make a loss before you can claim a tax benefit.

Apart from negative gearing, there are a host of other things to consider for successful property investments. If you want to find out more, talk to your financial institution, financial adviser or mortgage broker.

Stamp duty savings

Stamp duty is payable on the value of the land and building as at the date of the contract of sale. Therefore, if construction or refurbishment is yet to be commenced, a reduced amount of stamp duty is payable as compared with buying an existing or refurbished building. However, be warned, stamp duty concessions are NOT based on what the land value stated by the estate agent or the vendor or the advertising brochure. They are based on the value of works performed on the property after the contract has been signed. The concession will be greatest if the property is sold before construction commences. If the sale takes place after construction has commenced concession will apply only to the work yet to be completed. If all works are completed before the contract is signed it is unlikely that there will be any stamp duty concession.
In order to determine the extent of the concession available, the purchaser must establish the cost of the works performed during the contract period. This can be done by having the vendor provide a Land & Building Packages statutory declaration at settlement. Again, it is possible that the figures stated in the Land & Building Packages statutory declaration may differ from those quoted in the contract or advertising material.

Tax benefits

Some purchasers buy off the plan because of possible tax benefits. Off the plan purchases can realise significant depreciation tax savings that are greater than those available on existing buildings if purchased for investment purposes. Depreciation expenses that can be claimed may include building, furniture and fittings.
In addition, a rental property is negatively geared when it is purchased with the assistance of borrowed funds, and the net rental income, after deducting other expenses, is less than the interest on the borrowed funds.
Of course, advice from a financial adviser or accountant should be sought before committing to an off the plan purchase.

Lower purchase price
Developers are often keen to sell as many properties as early as possible, and so prices are usually very competitive. In addition, demand may increase as the development takes shape, the possibility that similar properties purchased closer to completion will be more expensive than those purchased early.
It is often the case that the best properties are sold first.

Fixed price
The price of the property can be locked in as at the contract date. One or two years down the track you can watch the value of your property grow relative to market movements. Generally, property values increase between the period of buying off the plan (signing the contract) to the date the development is completed.

Time to save for deposit
Off the plan purchases often allow for payment of the deposit by way of a deposit bond, giving purchases time to save enough to cover the 10% ordinarily required as deposit.

Choice of finishes and fittings
Buying off the plan provides the opportunity to put forward any suggestions for design and finishes in the property being purchased, allowing the purchaser to customise.