Investing in property is always a good idea not only because you can earn good rental income but also because of tax concessions and the fact that the value of property is on average rising.
WHAT IF YOU OWN PROPERTY ALREADY?
Releasing the equity of your home in order to finance your investment property is a wonderful way of using your current home to its full potential. Over the years hundreds of people across Australia have purchased a home and paid part of the new home with their existing home’s equity. Banks also can finance around 110% of the investment property but mainly depending on the home’s value.
WHAT YOU SHOULD KNOW?
- The income you receive from your new investment will go towards your existing home, meaning that in order to pay off the home loan you do not have to earn a large salary.
- In order to find a tenant, collect rent and maintain your property you will need to find a reliable property manager. You can also do it yourself but it is extremely time consuming.
- You should research the overall capital growth and the history of the area prior to purchasing a rental home. Ideally, you’ll want to chose an area that has transport facilities, shopping malls and recreational places, this will ensure that the value of your property grows overtime.
- Using negative gearing you can reduce your overall income tax liability via expenses of running your investment property. This works on the money you have borrowed for investment purposes and if the expenses are greater than the income it is generating.
- When it comes to selling your investment property if there has been an increase in value you will end up paying capital gains tax on this difference. This amount is then added to regular income and so you need to pay taxes at a marginal tax rate.
- There are many features and loan options to choose from but the choice you make will be based on your particular investment strategy and the property type you chose. We can ensure that your loan structure is a property set up in order to maximize your tax benefits. We can select from these 4 choices below.
A FIXED OR VARIABLE RATE HOME LOAN
Getting a fixed rate is a good option for an investor who has limited income. However, here the trade off is that the amount which is allowed for making extra repayments without a penalty is capped and you don’t have access to a redraw facility. In order to combine both flexibility and certainty you can split this into 50% fixed and 50% variable. You will also have to consider just the interest and principle versus the interest repayments.
JUST THE INTEREST HOME LOAN
During the interest only period your principle balance will be the same. The good thing about this is that it maximizes your investment’s tax deductions and frees up cash for various other investment opportunities.
LINE OF CREDIT
If you are already the owner of a home you can borrow against its equity. The term ‘Equity’ means the difference between what your property is currently worth and what you currently owe. With an equity home loan you get a sort of line of credit on your mortgage. The credit from this can then be used and taken in either stages or the full amount which makes it great for investing in property.
INTEREST IN ADVANCE
The great thing about this feature is that it allows you to pay the following year’s interest in the present year which will create a tax deduction.