Investing in Property is an Australian Dream
Investing in property is like any form of financial decision. You need to determine the structure of the purchase. Will it be: single owner, partnership, company or trust. In making this decision, you need to have regard to the issues of
- taxation,
- stamp duty
and the degree of control you wish to have over the income and capital of your investment.
Finance
Contracts (except in Queensland) are usually not subject to finance. Before exchanging contracts, you need to have a loan with unconditional approval. Otherwise, you risk losing your deposit if your lender does not approve your loan.
Lenders take into consideration 80% of the rental income when working out if you can afford the loan.
Rent
Cashflow is king when investing in property so make sure you can you can pay for your investment. The rate of return is an important consideration. If the property is not rented you need to find out the market rental you can achieve. Knowing the market rent allows you to determine if you can afford to repay the mortgage.
In looking at your capacity to repay the mortgage take into account how long will it take to secure a tenant? If it takes three or more months could you afford the mortgage repayments on your present salary? If not, there is a risk of default in repayment of the mortgage.
Remember that the mortgage will not be your only expense. There will be repairs, rates, strata levies, land tax, insurance, and agents fees to consider. A positively geared property is always best but not always achievable.
“Landlords grow rich in their sleep without working, risking or economising.”
John Stuart Mill
Legal Fees
Legal fees for your first investment property may be greater than for future purchases. You may incur costs of creating
- companies and
- trusts
as investment structure vehicles. When buying a home where location, location, location is the most important issue. But, structuring investment properties must be done carefully for taxation and investment purposes.
Calculate Stamp Duty Here