If you put your deposit 10% in a property worth $600,000 and the following years your property grown in price to $ 660,000, you have made an additional $60,000. If you have multiple property at once with the same capital growth, within that couple of years you have made more than $100,000. There is not a single bank investment that offers you this much interested for such a low savings.
It may seems a lot of paper work involves however all you need to do is get your finance ready. Of course you have to do depth research regarding the property you will be purchasing.
You have the say ‘WHERE TO BUY’, ‘ WHEN TO BUY’, ‘HOW TO BUY’, ‘ WHEN TO SELL’ and ‘HOW YOU SELL’. There is not tied up terms on where you have to purchase or owned a certain amount of property for a certain amount of time before you can change your direction. All in your hands.
Property price movement rather slow compared to stock and currency. People fear that the property price might go down in value and it is a lost for them. But for as long as you don’t sell the property, it is not a LOST. You keep your property for as long as it takes until the price grows up. With the current situation especially in major cities, the population always grows. By that factor it self it is rest assured that property price eventually will go up.
There is not special terminology linking to property. A unit, a house, a penthouse, a townhouse, etc. Unlike the stock market where we have to study them from the very basic.
About 95% of your expenditure for your investment property are tax deductible. Accountants will help you in claiming your tax back and maximizing it so then you can save thousands of $$$ and improve your cash flow. And this is Legal.
Let your tenant pays their rent which goes to your mortgage. While they doing so all you have to do just watch your property grow in price.
Property investments are more solid than any other investments trading. The reason for this is due to you being able to see 24 to 48 months ahead to where the market will be heading.
People will always need a place to say regardless in what economy condition.
Forbes magazine stated that 135 property tycoons now make up the world’s wealthiest list with 14 property billionaires joining the ranks this year alone, boosted by surging property values around the world.
1. Low cost
Apartment living can be much more cost effective than house living for both bills and rent. Heating and cooling a smaller area will save money on your gas and electric bills. The rent is usually much cheaper on apartments too, compared a house or a mortgage.
Apartments can also be quite a sustainable option because with so many people living in close proximity it means that apartments retain heat from other apartments, which reduces the amount of heat you use in your own apartment. This means your winter energy bill will be much cheaper than if you were living in a house. The newer your building, the more energy efficient is likely to be.
2. No maintenance
If you have a problem in an apartment that you rent, you can usually call the property manager and have someone else deal with the issue.
Gardening is another major factor to consider. Most apartments don’t have private gardens, only small balconies, which means that if you live in an apartment your weekends can be spent doing whatever you please rather than mowing lawns or planting bulbs.
The grounds of apartment blocks usually have a maintenance person who takes care of the communal building gardens which means you won’t have to spend your time weeding garden beds.
3. Increased safety
Most apartments have several layers of entry. A main door, a side door or a fire door, then the door of your apartment.
It’s more difficult for potential thieves to get access to your home in an apartment, particularly if your apartment has a foyer or secure front entry system.
There’s also the benefit of living in such close proximity to others. It’s trickier for a thief to get large valuable items like TVs past several other apartments and out the communal front door without witnesses.
4. Extra amenities
Apartment blocks often come with amenities that you wouldn’t normally get if you rent house like gyms, pools, rooftop entertaining areas, BBQ areas, laundry rooms and secure storage cages. Having a gym and pool on site is really convenient and will save you money on gym membership fees.
BBQ areas are great for entertaining and will save you having to invest in expensive outdoor entertaining equipment.
If you live in an urban area one of the best perks of apartment living is the car park. Street parking in urban areas can be a nightmare and apartments often come with secure underground parking.
Having a secure car park will probably save you money in car repairs too. I know from personal experience that parking your car on the street in a high density area can be really expensive – from fixing minor scrapes and dings to full on break-ins with smashed windows.
5. Low commitment
As the rent is generally lower on apartments it means that you’re able to move around whenever you like without being tied to a house with a mortgage. You’re also able to afford to live in higher socio-economic areas that you may not be able to afford to rent or buy a house in.
Many people, especially accountants and advisers, tend to take terms like ‘negative gearing’ for granted. Terminology like this tends to make information inaccessible to those who need to understand it the most.
To save those who need to muster up the courage to ask the question, the following is an absolute beginner’s guide to negative gearing.
Before we define what is meant by the term ‘negative gearing’, we need to look at the current marginal tax rates that are applicable to an individual.
The above does not include the Medicare Levy of 2% of taxable income, nor does it include the Temporary Budget Repair Levy announced in the last Federal Budget of 2% for every dollar of taxable income exceeding $180,000. Further, if you do not have private health insurance but your income goes over a certain threshold, you may be slugged with an additional Medicare Levy Surcharge of up to 1.5%.
In other words, if you are subject to these surcharges and levies and your taxable income is more than $180,000, every dollar you earn exceeding this amount will be taxed at as high as 51.5% – more than half of that dollar will be going straight to tax! Apart from the arguably draconian tax rates, before we discuss negative gearing you should also be aware that 100% of income such as rent derived from an investment property, net of rental expenses, is included in your taxable income.
On the other hand, if you sell your investment property and make a capital gain, that capital gain is also included in your taxable income. However, if you, as an individual, have owned the property for at least 12 months before it is sold, you will be entitled to the 50% capital gains tax (CGT) discount, which will reduce the capital gain by half before the gain is included in your taxable income.
In other words, the tax system currently has an inherent bias that favours capital gain over income.
Negative gearing is just a fancy term to describe a situation in which the total expenses you incur on your investment property exceed the total rental income you derive from the property.
For most people, by far the largest rental expense is interest on the loan that was drawn down to buy the property. Other expenses include body corporate fees, council rates, cleaning, property management fees, repairs and maintenance costs, etc.
As your annual outgoings to maintain the investment property exceed the rental income you derive from it, you will be making a net loss, which is numerically expressed as a negative figure.
Coupled with the fact that the loss is commonly attributable to interest expenses from borrowings taken out to buy the property (borrowing is also known as gearing), the term ‘negative gearing’ was conceived, which captures the common scenario in which you make an annual net loss on an investment property due to the interest on the loan, but, technically speaking, other expenses may also contribute to this loss.
In particular, the loss may be further amplified by depreciation and capital works deductions, which are not cash outgoings but are nonetheless tax deductible.
What makes negative gearing particularly tax attractive is that the net loss can be offset against other income that would otherwise be included in your assessable income. Therefore, if a dollar of income would otherwise be taxed at 51.5%, every dollar of negative gearing loss which offsets that income will save you 51.5 cents!
Meanwhile, if the investment property goes up in value but you do not sell the property, no CGT will be payable. Even if you do sell the property after 12 months, the capital gain will be discounted by 50%.
Accordingly, provided that the total after-tax capital gain on your property and the total tax you have saved from negative gearing exceed your total rental losses during your ownership of the property, you will be in front and make an overall net profit from the property.
How it works in real life
To illustrate the above, consider the following example:
• You purchased a property for $500,000 by putting in $100,000 of your own money and $400,000 from the bank.
• The interest rate on the loan is 5.5% per annum. The loan is an interest-only loan, ie none of the principal is paid down each year. Therefore, the annual interest expense on the loan is $500,000 x 5.5% = $27,500.
• The annual rent on the property in the first year is $25,000, which increases by 3% per year.
• The annual expenses for the property in the first year, excluding interest expenses, is $10,000, which increases by 3% per year.
• Based on a depreciation report prepared by a qualified quantity surveyor, you can also claim depreciation and capital works deductions of $4,000 per year.
• You own the property for three years before it is sold for $550,000.
• You pay tax at the highest marginal tax rate of 51.5%, inclusive of all levies and surcharges.
Your total negative gearing losses over the three years will look like this:
*Depreciation and capital works deductions are added back because these are not ‘cash expenses’ you have incurred.
Ignoring other incidental costs, if you sell the property after three years, you will make a capital gain of $550,000 – $500,000 = $50,000.
As you have owned the property for at least 12 months before it is sold, the CGT payable will be:
$50,000 x 50% CGT discount x 51.5% = $12,875.
Therefore, your after-tax capital gain will be: $50,000 – $12,875 = $37,125.
In summary, a comparison of your return on capital from the property investment, with or without negative gearing, is as follows:
*$48,136 (from last column of Table 1) – $12,000 (non-cash tax deductions) = $36,136
In other words, negative gearing may provide significant tax savings that may turbo-charge the return on capital on your investment property.
Having said that, negative gearing is a hotly debated topic in the public space at the moment. In particular, the opponents to negative gearing argue that negative gearing encourages property investment by providing significant tax perks that drive up housing prices, which makes home ownership inaccessible especially to first home buyers.
Therefore, watch this space.
Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service.