Real Estate & Property for Sale at ParkTrent Real Estate / Cross Country Realty Australia

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What is a residential investment property?

A residential property is a house, town house, terrace or unit which the owner does not us as a personal residence, but rents out. This allows the investor to benefit from both tax advantages and rental income from the property.

What is a negative geared property?

The term ‘negative gear’ simply refers to a situation where your cash outflow to maintain an investment exceeds your cash income from the investment itself.

For example, with a residential property, if the mortgage payment on your property exceeds the rental income from the property, it is said to be negatively geared. In other words, the investment income is negative, which allows you to claim the interest costs on your mortgage or loan as a complete tax deduction.

Recent studies demonstrate that negatively geared rental property remains the most tax-effective investment vehicle.

What if I don’t feel comfortable about going into debt?

While the concept of debt may seem disturbing, the reality is we live with debt of one form or another, and few people attain true financial independence without some form of leveraging.

In fact, most Australians are actually more comfortable with debt than they realize, through the mortgage on their home, or perhaps the loan on their motor vehicle or their furniture. Many of us are in ‘debt’ to the tax man by virtue of the fact that we earn an income.

There are two key principles that will ensure security when it comes to borrowing:

• Only borrow to purchase appreciating assets
• Make sure your debt is manageable
  

What happens if my income stops and I can’t service my debt?

The answer to this question can best be demonstrated by looking at the financial circumstances of the average Australian family. With interest rates the lowest they have been for years, many families are focused on paying off their own home as quickly as possible.

For example, a couple may be trying to reduce the term of their loan by paying an extra sixty dollars each week. If one partner gets sick or losses their job, they may be placed in the position where there is no redeemable asset base to turn to but their own home.

If that same sixty dollars a week were invested in a second house, the risk may actually be diminished. The advantage of investing in a redeemable asset base is that, if something happens, the family house is not put on the line – there is something else to turn to.

Life or trauma insurance and income protection policy will replace 75% of a person’s regular income while that person in unable to work.

What if I need the money in a hurry?

Residential property offers a lot of flexibility. Today if you need cash in a hurry you can actually draw the equity off you own home simply by re-financing.

If, in the worst case scenario, an income stream is cut off for an extended period of time and there is no other redeemable asset base to turn to, the investment property can be sold to pat back the loan.

What happens if interest rates go up?

If this is a concern, take out a long term or fixed interest loan. This gives the investor two advantages:

Because the amount of repayment is known in advance, it is easier to plan financially.

The amount of interest paid will remain constant for the duration of the fixed term, despite a rise in interest rates.

Remember, whenever interest rates rise, property prices also rise, providing the capital growth in income stream for investors. We only have to look back to 1988 to see an example of the parallel between a rise in interested rates and a peak in property prices.

What happens if I can’t find a tenant for my property?

It has been our experience that, provided a building is in a reasonable state of repair, and you are not a greedy landlord, you can find a tenant for it.

This is particularly true of the lower end of the rental market. If there is a protracted vacancy rate (for example, anything more than two weeks) it may be a matter of adjusting the rent slightly.

With the right property management in place, however, vacancy should not be a problem. A good manager – in the form of either onsite management, or a local real estate agent – should have no difficulty finding suitable tenants, with whom they can foster a long term relationship.

What happens if a property is damaged or if I have a bad tenant?

A comprehensive insurance policy will protect your property against most forms of damage. The cost of the insurance is minimal and is tax deductible.

If you are correctly insured, an instance such as a natural disaster can actually work in your favour, by creating a significant tax advantage.

With effective property management, tenant difficulties should be non-existent or reduced to a minimum.

What if I don’t have the time to manage my own investment?

Maintaining control of your investment, does not mean active involvement. Once a property has been purchased, an investor’s involvement can be reduced to a minimum through the use of an effective property manager.

As mentioned in a previous question, the right kind of property management will save the investor time, money and tenancy headaches.

Managers can assist in some or all of the important areas: Maintenance, improvements, tenant screening, rent collection, lease preparation, advertising, inspections, tenant relationships.

When selecting a professional manager, it is important to look for someone who is not only a good people manager, but someone who runs the rental roll like he would run his own business.

What if I don’t have enough money for a deposit?

Cash is not necessary as a deposit when there are sufficient assets to borrow against. For example, the equity in an existing home can be used to finance the purchase of an investment property and its associated costs.