Tax Time Tips for Property Investors

If you are one of the 2 million people in Australia* that have investment property, whether negatively or positively geared, tax time means getting your things in order to maximise your deductions, including your loan interest expenses.

Here’s 5 Top Tips this tax time:

1) Understand all of the deductions categories.

Expenses include; mortgage interest, bank charges, council rates, water rates, cleaning, pest control, gardening, repair and maintenance cost, insurance, body corporate fees, advertising for tenants and agent management fees, capital works, depreciation, insurance, land tax and travel to inspect or maintain the property. Whilst you may have a good accountant, it is important for you to have an understanding of what can be claimed in order to provide them with the best possible information for deductions.

2) Don’t forget depreciation and capital works.

You can claim depreciation for the decline in value of the assets in your investment property such as hot water systems, carpets and heating and cooling systems. You may also be able to claim capital works expenses from the construction of the property, usually over 25 to 40 years. These deductions can be significant, particularly in new properties. The easiest way to understand and calculate depreciation and capital works, is to invest in a tax depreciation report from specialists such as BMT.

3) Ensure you keep records.

If you rent your investment property through an agent, they may handle the vast majority of your property expenses and provide you with an annual statement with these classified according to the taxation requirements. It is likely though you also incur expenses; such as interest on your investment property loan, bank charges, insurance, travel expenses and possibly land tax. The ATO is known to audit investment property owners and adequate receipts and records including those provided by your agent need to be kept for a minimum of 7 years.

4) Don’t forget the impact of capital gains when it comes time to sell.

There can be substantial tax advantages of investing in property, however keep in mind when it comes time to sell there may be tax payable on any capital gains. For property owned over 12 months, the 50% discount applies. It may also be possible to time capital gains with other capital losses. It’s best to speak to your accountant before making plans to sell your investment property to plan for the capital gains impact.

5) Have a great accountant!

Last but not least, make sure you have a good accountant that is across all aspects of investment property to keep you on the right track and maximise your investment deductions.

For more information you can refer to the ATO’s guidelines on expenses and depreciable assets or talk to your accountant.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

* Source: ATO https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2014-15/?page=5

5 simple financial New Year’s resolutions

The new year is here and after an indulgent holiday break most of us are happily fixated on health goals. Kale sales will no doubt sky rocket in the next couple of weeks, along with gym memberships, as we all vow to lose five kilos. But what about ‘financial health’ resolutions for 2017?

With a little focus and thought (while jogging at the gym in the first couple of weeks of January?) we can also get our finances in great shape.

Here’s 5 simple ways that each take 15 mins or less.

 

  1. Calculate your net worth

The new year is a good time to get a clear picture of where you are at financially. Calculating your net worth is the financial equivalent of putting yourself on the scales. Add up your assets and liabilities and get yourself to a net worth figure as the starting point for your financial resolutions for 2017. And by assets I mean your house, investments, shares, superannuation (we are not talking assets of the genetic variety unless you happen to be a Victoria Secret model). Debts are thing such as credit card debt, personal loans, mortgages and investment loans.

Time = 10 minutes

 

  1. Work out what it’s all for

Many Australians put financial goals in the too hard, or ‘I’ll get around to that’ basket. If you don’t have clear financial goals, sit yourself down for 15 minutes, alone, or with a partner or your family and work out what it is that you want. Do you want to own your home by 50? Head to Europe for 6 weeks next year? Build a new house by 2020? Take a year off work? Write down your short and long term goals. If you do have financial goals already set, the new year is a great time to review these and see if they still apply and how you tracked against them in 2016.

Time = 15 minutes

 

  1. Get the credit card under control

How are the credit cards looking? Were they hit hard pre Christmas, or the boxing day sales?! We all know credit card debt has significantly higher interest than residential mortgages and repayment minimums are set low. It is easier than ever to rack up credit card debt.

If you have $4,400 of credit card debt and only make the minimum repayments, it will take you 31 years to pay it off and cost you around $14,900 in interest.*

Set yourself a goal to get any credit card debt paid off as soon as possible. If it is all looking a bit difficult, you can look at consolidating debt to make it one payment at a lower interest rate. If you need any advice or assistance with debt consolidation please get in touch.

Time = 10 minutes

 

  1. Pay extra off your mortgage

In the classic ‘pay yourself first’ way of saving, can you make additional payments on your mortgage in 2017? For example, a couple with a $400,000 mortgage could save around $50,000 and pay off their debt almost four years earlier by contributing $200 extra monthly,’ If you decide you want to make extra repayments, consider automating your payment, that way you’ll be saving without much thought, and have no excuse for not making payments.

Time = 10 mins to set up automatic payment

 

  1. Start planting some ‘investment’ trees

In the words of billionaire investor Warren Buffet “Someone’s sitting in the shade today because someone planted a tree a long time ago.” If you don’t currently have investments, you could start thinking about or researching investing. While there is no guarantee on any investment asset type, whether that’s property investment, shares, having either equity (cash) or debt (loan) funded investments can be a significant way to build wealth over time. If you already have investments, take the time to stop and review your current investment strategy – are you happy with your current leverage? (debt to equity ratio), investment mix and amount of investments? And don’t forget, your Mortgage Broker can also assist with investment loans for property or shares.

Time = 15 minutes

 

So skip the Netflix binge for a night and set yourself up for a financially healthy 2017! A small investment of your time can pay big dividends.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

*Source: ASCI Moneysmart https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards/credit-card-debt-clock

 

 

What is a good interest rate? How do you know if you have one?

Your mortgage is likely to be your single biggest monthly expense and yet you might (like many people) struggle to know what interest rate you are paying, let alone whether or not you are getting a ‘good deal’.

The difference in interest rates can be significant. The best rate in the market at the moment (after the recent rate cut) is around 3.8% and the highest rate (for low doc loans) are over 6.0%. A whopping variation of 2.4% ($12,000 in interest per year on a $500,000 loan – cash you would much rather have in your back pocket!!).

What impacts on the interest rate of your home loan?

There are several factors that will impact on the interest rate you have from your lender;

  1. The features you want
  2. The total amount you are borrowing
  3. The Loan to Value Ratio (LVR)
  4. Principle and Interest or Interest Only
  5. Owner Occupied or Investor

 

1) Features

As with many things in life, when it comes to a Home Loan you generally get what you pay for. If you want to buy a new car, you can choose to pay a little extra for DVD players, leather seats, carpet and window tint. With a Home Loan, it is no different except the sort of features that you will be looking at include Offset, Redraw and Fee Free Credit Cards.

And the reality of Home Loan pricing is that consumers tend to pay a premium for convenience. If you want to have all of your banking within the same institution, seamlessly linked as much as possible you will generally be getting a Home Loan package and this may come with a slightly higher interest rate to cover these features.

For example, a no frills home loan only available through a broker could be as low as 3.88% and a full package loan through the big lenders will be somewhat more expensive, anywhere from 4.2% upwards.

 

2) Total borrowing amount

Generally the higher the amount of money you are borrowing, the larger the discount the big banks will be willing to offer you off their standard variable rates (subject to their other criteria, more on that later). The non-bank lenders don’t tend to offer these same discounts as their advertised rates already incorporate a discounted rate. 

For example, with a recent home loan over $1.0 m, I negotiated a discount of 1.3% off the standard variable rate, reducing the standard variable rate down to 4.26%. Another client, with a total borrowing of $400,000 the discount negotiated was 1.1%, taking the standard variable rate down to 4.38%.

 

3) The Loan to Value Ratio (LVR)

The smaller the loan in relation to the value of the property the better the price generally available. The best discounts will be available for LVR’s that are 80% or below. The higher your LVR gets, the higher the risk to the lender, so the lower the discount. And in some cases, if the LVR is too high (over 95%) the banks won’t lend at all, let alone offer discount.

 

4) Principle and Interest or Interest Only

Principle and Interest loans will attract higher discounts than Interest Only Loans. The regulator (APRA) sees interest only loans as somewhat risky and fueling speculative investment. They want to see borrowers paying down loans and have put pressure on lenders in recent years to reduce the availability of interest only loans.

For example, a client recently wanted to change over their investment loan from Interest Only to Principle and Interest in order to reduce interest payments and the discount increased by 0.2%. 

 

5) Owner Occupied or Investor

In July 2015, the regulator (APRA) imposed guidelines on lenders to take the heat out of the property market by restricting the growth in investor lending to under 10% a year. This now means that borrowing for investment purposes now attracts a premium, and most lenders have separate rates for investment loans to owner occupied loans.

For example, the current standard variable rate for ANZ is 5.56% for Owner Occupied and 5.83% for Investors (a difference of 0.27%).

 

 And the impact of set and forget!

And a final word – borrowers who don’t regularly review their lending will also pay a premium as discounts offered years earlier may now be well below that available in the market today. Banks have relied on people to ‘set and forget’ and it’s the age old saying “don’t ask, don’t get”.

One of my clients had been paying 4.93% on an investment loan (with a discount of 0.9% that had been put in place 3 years ago). With additional negotiation I was able to reduce the rate to 4.58% (a total discount of 1.25%) saving over $3,000 per year in interest.

What rate do you have currently? Do you think it is a ‘good rate’?

If you aren’t sure, the best way to know if you have a ‘good rate’ is to get in touch for a free, no obligation, 30 minute home loan health check. 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

Why would you use a Mortgage Broker?

Research has revealed that 53% of Australian’s now use a mortgage broker for their lending needs, up from 35% ten years ago. So why are Australian’s increasingly using the services of a broker?

 

1) A choice of lenders

With an extensive panel of lenders (including the major banks), mortgage brokers are able to compare hundreds of loans to find a loan that gives you the best fit for what you need. If you go direct to a bank, they will only show you their lending products. Better choice across the whole market = a better loan and interest rate tailored to your needs. Here is the panel of lenders that we have at Choice Home Loans.

 

2) To save time

With today’s increasingly busy lifestyles you probably don’t have hours to devote to ‘shopping around’ to find the best loan and to go back and forth to a bank. Mortgage brokers are customer service focussed and most will come to you at a time and place that suits you – whether that is at home or work, during or after hours.

 

3) It’s free and could save you money

There is no cost to you for the services of a broker. Brokers get paid commission on loans from lenders, but regardless of whether you go direct to the bank or through a broker, the interest rate and fees to you will be the same. Very often, given brokers knowledge of the lending market and the access they have to special lending deals – using a broker can get you a better interest rate than going direct. Last year our clients who refinanced saved on average $3,800 a year in interest, a huge saving from finding a better rate in the market.

 

4) They are finance experts 

Mortgage brokers are experts in financing options, with an in depth understanding of the overwhelming array of loan options available. Many loans seem to offer a great deal, but they could have penalties, fees and charges you may not be aware of, or they may not offer the flexibility you require in the future. Mortgage brokers ensure that you find the best loan for your specific requirements, now and into the future.

 

5) They are with you for the loan and beyond 

Unlike constantly changing bank staff, Mortgage Brokers are often with you for the life of your loan and beyond. Mortgage Brokers usually own their own businesses and are committed to their clients for the long term, keeping in touch to make sure your loans are still right for you and that circumstances haven’t changed. How often does the bank call to tell you that interest rates have changed and you can get a better deal? Probably not often! But don’t be surprised if this is something your broker does.

 

There are significant advantages to using a mortgage broker. Whether you have an existing loan which needs a health check to see if it’s still the right fit and the best interest rate, or you are in the market for a first or next home, or it’s time to stretch yourself and get an investment loan – it’s a great idea to get in touch with your mortgage broker.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

For specialist lending advice, you can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Why is your investment loan rate going up?

Changes to Investor Lending

Over the past several weeks we have seen the banks make changes to their lending policies, in particular around investment and interest only loans. Following some more discreet changes by some of the second tier lenders, over the past fortnight we have seen a number of significant announcements from the major lenders:

CBA on the 22nd of July – increasing the rate on investor loans by 27 basis points

ANZ on the 23rd of July – Increasing the rate on Investor loans by 27 basis points

NAB on the 29th of July – increasing the rate on investor and interest only loans by 29 basis points

Other such as AMP are ceasing all investor lending as well as imposing an additional 47 basis points on existing lenders.

Clients have asked why this is the case and quite simply it is in response to calls from the lenders regulator (Australian Prudential Regulatory Authority) asking them to slow growth in the investment space to less than 10% and tightening capital controls.  This is being done in an environment where policy makers are under pressure around housing affordability, whilst at the same time worried about a slowing economy.

It is the opinion of this humble Broker that these measures will only reduce the returns available to investors, which will in turn force the hand of landlords to recover these costs through higher rents, perversely achieving the opposite of the desired housing affordability.

What does that this mean for you? All is not lost. Speak to your Mortgage Broker as it is our job to find solutions and the best outcomes for our investor clients. There are still lenders out there offering great deals and there are strategies available which can minimise the cost to borrowers in many cases.

 

Do you have an investment loan rate that has recently increased? What will the annual increase in $ represent for you?

 

Like to discuss your investment property loan?

telephone Call Douglas today on 0408 671 524

 

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Case Study: Investing in Property

Is Negative Gearing for me? 

 

Case Study: Investing in property

Craig works as a Brand Manager at Lion Dairy and Drinks and I recently worked with him to gain pre approval for the purchase of his second investment property.

I asked him if he could share his experiences with investing in property.

 

Tell us a bit about your first investment property?

I purchased my first investment property in June 2014 in Frankston for $361k. Since then the property has been rented out to a reliable tenant and giving me regular cash flow.

The property is negatively geared but the shortfall is only around $100 per week (less after tax!) and I’m hoping 5 years down the track it’ll be paying for itself.

Since I bought the property I’d estimate it’s gone up in value by $30-40k, Frankston had a great growth spurt in the first quarter of this year.

 

Tell us about why you are looking at a second investment property?

I see property as a great vehicle for wealth creation.  It has potentially great returns for (relatively) low risk.  You just need to choose well and do your research!

This time the circumstances are a bit different as I’m looking to find a property that is in need of renovation and I’m planning to do the renovation myself.

I’m looking at older houses that I can modernise and add value to which I’ll either sell or rent.

 

How did you choose the type of investment property and the suburb it’s in?

I’d read a lot about Frankston being a potential future hotspot and the median value is still quite low, so it’s affordable to buy into.  There is a bit of a stigma around the suburb but it’s slowly gentrifying, the local council is pouring money into infrastructure and of course it’s beachside!

I’m looking at buying my second property in Reservoir as it’s an area that’s growing in value and one where older style houses that are renovated are in demand and fetching a premium to those that aren’t renovated.

My preference is to buy houses with a land component which in the long run will appreciate in value and can give you options down the track to subdivide / develop.

 

Do you have any advice for other property investors?

Be careful about fixed rates! I fixed my rates in for 3 years at 5.14% with Bankwest. At the time it was a great deal and it gave me certainty over repayments, but it has reduced my flexibility to change and of course rates have gone down.

In all seriousness though, investing in property has has worked really well for me so far and I’m looking to build my portfolio slowly over time.  But how bigger portfolio only time will tell!

I guess though it depends on your particular circumstances, but of course you need to take action to start building wealth and not get in the trap of suffering from analysis paralysis!

 

A big thanks to Craig for sharing his experiences.

 

Interested in Property Investing and want to discuss finance?

telephone Call Douglas today on 0408 671 524

 

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Is Negative Gearing for me? 

Tax Time Tips for Investment Property Owners

It’s tax time and those of you with Investment Property, whether negatively or positively geared, will no doubt be looking to maximise your deductions.

Here are 5 Tips on Taxation and Investment Property

  1. Have a good accountant.
    It goes without saying a good accountant that is across all aspects of investment property will keep you on the right track and maximise your investment deductions.
  2. Understand all of the deductions categories.
    Expenses include; mortgage interest, bank charges, council rates, water rates, cleaning, pest control, gardening, repair and maintenance cost, insurance, body corporate fees, advertising for tenants and agent management fees, capital works, depreciation, insurance, land tax and travel to inspect or maintain the property. Whilst you may have a good accountant, it is important for you to have an understanding of what can be claimed in order to provide them with the best possible information for deductions.
  3. Don’t forget depreciation and capital works.
    You can claim depreciation for the decline in value of the assets in your investment property such as hot water systems, carpets and heating and cooling systems. You may also be able to claim capital works expenses from the construction of the property, usually over 25 to 40 years. These deductions can be significant, particularly in new properties. The easiest way to understand and calculate depreciation and capital works, is to invest in a tax depreciation report from specialists such as BMT.
  4. Ensure you keep records.
    If you rent your investment property through an agent, they may handle the vast majority of your property expenses and provide you with an annual statement with these classified according to the taxation requirements. It is likely though you also incur expenses; such as interest on your investment property loan, bank charges, insurance, travel expenses and possibly land tax. The ATO is known to audit investment property owners and adequate receipts and records including those provided by your agent need to be kept for a minimum of 7 years.
  5. Don’t forget the impact of capital gains when it comes time to sell.
    There can be substantial tax advantages of investing in property, however keep in mind when it comes time to sell there may be tax payable on any capital gains. For property owned over 12 months, the 50% discount applies. It may also be possible to time capital gains with other capital losses. It’s best to speak to your accountant before making plans to sell your investment property to plan for the capital gains impact.

For more information refer to the ATO’s guidelines on expenses and depreciable assets or talk to your accountant.

 

Thinking of reviewing your investment property loan? Or purchasing an investment property?

telephone Call Douglas today on 0408 671 524

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Is Negative Gearing for me?

Negative Gearing can be described as an approach to investment whereby losses recognised against one investment can be offset against other income, with the effect of reducing one’s overall tax. In Australia, it generally refers to residential property investors who can offset losses on an investment property (or properties) against their regular PAYG income.

Negative gearing is most valuable to taxpayers in the highest tax bracket, as their allowable tax deductions are worth more cents in every dollar.  Take the following examples:

Example – Anthony

Anthony is an Engineer, earning a gross annual salary of $75,000. He decides to purchase an investment property with the following estimated financial results:

Rent Received                                 $20,000

Interest Payable                              $18,000

Repairs & Maintenance                 $2,000

Management Fees                          $1,000

Depreciation                                    $2,000

Total                                                  ($3,000)

Anthony can offset the $3,000 loss on his investment property against his $75,000 income, meaning his Taxable income for this purposes would be $72,000 (leaving aside Medicare and any other allowable deductions). With his marginal tax rate of 32.5c in the dollar, Anthony can reduce his tax bill by $975. Thus he is out of pocket $2,025 in that year.

 

A person on the highest marginal tax rate will benefit more from the same scenario as the following example shows.

Example – Darrell

Anthony’s boss Darrell earns $200,000 per year and has also decided to purchase an identical investment property to Anthony, with the financial results exactly the same:

Rent Received                                 $20,000

Interest Payable                              $18,000

Repairs & Maintenance                 $2,000

Management Fees                          $1,000

Depreciation                                    $2,000

Total                                                  ($3,000)

Darrell can offset the $3,000 loss against his taxable income (again leaving aside Medicare, levies and other allowable deductions). With his marginal tax rate (highest tax rate) of 0.45c in the dollar he reduces his tax payable by $1,350. Darrell is therefore out of pocket $1,650 on the same investment.

Opponents of Negative Gearing will argue that the additional tax benefits available to investors (versus owner occupiers) such as the ones outlined above mean they cannot afford to compete in the marketplace for the same properties.

Supporters of Negative Gearing argue that the tax deductibility of losses means they as landlords can charge lower amounts of rent, therefore making that housing more affordable to tenants. Developers contend that without investors they would lose demand for their properties and consequently supply would slow down supply, perversely resulting in higher prices anyway!

Whatever your position Negative Gearing is currently an effective and legal way to invest in property, however incurring a loss on property should not be your primary reason to invest. The tax effect of investing in property should be a consideration, but not the only one.

Speak to your Accountant to determine whether negative gearing can work for you. If it is, get in touch to arrange the necessary finance, I can help with determining your borrowing capacity and pre-approvals before you start looking for an investment property.