Investing in Property

Anyone who invests in property is looking for one thing and one thing alone, and that is to make a profit at the end of the day. Whilst it is part of the great Australian dream to own your own home, adding an investment property is now running a close second with many long-term home owners utilising the equity in their own property to purchase one or more investment houses.

Over the last 30 years property values have continued to soar and investments in the property market are almost too good to ignore. All of this is not surprising when you consider the favourable tax treatment that investment properties attract.

In the first place, the interest paid on investment loans is fully tax-deductible and when you couple that with the beneficial treatment given to depreciation of certain assets and the ability to write off costs against taxable income, it is not surprising that more and more Australians want to enter the property investment market.

But, as many investors have discovered to their disquiet, it is not simply a matter of buying a house and are waiting to reap the profits. Investment in any asset requires a good deal of planning and professional advice in order to choose the right strategy; none more so than the property market.

In the planning process which should take place many months before the investment is actually acquired, savvy investors make sure they follow the following checklist.

Make sure they have sufficient equity in their own property and the borrowing capacity in terms of their income and employment situation to qualify for an investment loan.

Plan the best taxation strategy to take advantage of all tax-deductibles and ensure that the investment loan structure suits the strategy.

Discuss investment loan options with a mortgage broker or financial adviser, whether it is for a line of credit or interest only facility, to take advantage of maximum taxation benefits.

Plan to use any excess cash flow to pay off personal debt.

Obtain advice from an accountant regarding the best way to plan a depreciation schedule, including a consultation with a quantity surveyor.

What makes an investment property such an attractive proposition?

Investment properties in Australia are given favourable taxation treatment through the generous deductibility provisions in respect of interest paid on loans, depreciation of fixtures and fittings within the property and many other elements which vary from property to property.

Whilst capital gains tax is payable on the increase in value of an investment property once it is sold, the first 50% of the gain is exempt from taxation. This is a significant advantage that does not apply to many other investment classes.

Properties can be purchased by a self managed superannuation fund to take advantage of the additional taxation benefits that apply to these schemes.

Even a brief discussion with your accountant or financial adviser will alert you to the many benefits that a proper investment and bring. Many advisers recommend this strategy as one of the better options in planning your retirement and with little negative cash flow, the benefits are there for the taking.

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