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Tips For Investors


Getting rid of or yourmortgage, and owning your own home may be the “great Australian dream” but having an investment property is often considered the next logical step. There are myriad reasons why people choose to purchase an investment property inCairns over other forms of investment, but a large part of it is familiarity. With the exception of a very few Australians, we all live in a house or apartment and most of us see no reason why owning an investment property or two would be very different and we would be mostly right.
It’s not just the interest rates and the new mortgage that you need to consider when buying an investment property. There are some other factors which are very different for an investment property than they are when you own your own home and which you should take into account when considering purchasing an investment property:

Higher Transfer Duty

In Queensland, if you are buying a property to use as an investment property, you will pay considerably more Transfer Duty than you would if you were buying the same property to live in.
For example, a $500,000.00 investment property would cost you a whopping $15,925.00 compared to just $8,750.00 if it were to be owner-occupied.
If you are using the equity in your home to purchase your investment property, it is a good idea to check whether your lender will require you to pay the transfer duty yourself or if it can be included in any loan amount. Otherwise, you may find yourself locked into a contract and liable for thousands of dollars in Transfer Duty.

Rental Income

Whilst you may be able to rent a property out for $400.00/week and have done all your calculations about what you can afford based on that figure, banks will usually only use about 80% of your gross income when determining whether or not you can afford a loan. This means your $400.00 week becomes $320.00 and, depending on your other income, may mean you are unable to secure a loan.

Tax Consequences

We all know that money you spend on your rental property and the interest on your mortgage is tax deductible so you are guaranteed a good tax return, right? This isn’t necessarily true. People often forget that the rent they receive for their property counts as income and will be factored into any tax assessment on top of their wages and any other income. The interest portion on your mortgage will also decrease with time so there will come a point when the interest you are paying doesn’t offset the rent you are receiving and this may result in you owing additional money to the ATO.
You should talk to your accountant so that you fully understand any taxation implications of buying an additional property.

Beyond the Mortgage

Another common trap people fall into is thinking they can afford an investment property because the rent will cover the mortgage payments. They are forgetting about all the other expenses which come with owning a rental property (for example council rates,  home insurance, property maintenance like repairing garage doorsupgrading telecommunications systems, and others).
For starters, if you have a real estate agency handling the property for you, they take their percentage before you receive your share so that $400.00 per week in rent may only be $360.00. This alone may mean you need to pay an additional $2,080.00 per year towards your investment property.
Then we take into account things like rates, maintenance and repairs, and any capital improvements you might like to make and suddenly you are paying out a considerable amount of money for things you never really considered at the beginning.
All of this also assumes that the property is always tenanted. If you have a couple of bad tenants or struggle to find a new tenant, you will need to cover the mortgage payments without the benefit of any incoming rental monies.

What can you do?

Owning an investment property can be a great way to invest your money, but it is crucial that you do your due diligence and factor in all the costs of ownership. Look into vacancy rates in the Cairns area, know how much rates will cost you, and talk to your accountant. These are the boring steps which can save you considerable heartache down the track.
If you decide you can afford an investment property, it’s in your best interest to make sure you have the lowest interest rate possible and talk to your mortgage broker about other loan features such as offset accounts or redraw facilities which may help you better manage the costs of your investment property.

If you do need some advice on a mortgage for a home loan or an investment property, feel free to contact Preston Finance We are based in Cairns and can help with all your investment needs.

By Lauren Eakins

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