What is a residential investment property?
A residential investment property is a house, townhouse or unit, which the owner does not use 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 "negatively geared" property?
The term "negatively gearing" simply refers to a situation where your cash outflow to maintain an investment exceeds your cash income from the investment itself. Recent studies demonstrate that negatively geared rental property remains the most tax efficient investment vehicle in the 1990's.

I thought property investment was for high-income earners or the wealthy?
Statistically in Australia, over 70% of property investors are on incomes between $35,000 and $40,000 per annum. Over 90% of all millionaires become so through investment in real estate.

"It's not how much you earn that counts, it's what you do with what you earn"

What if I have no deposit for an investment property?
What you mean is that you have no cash deposit. Cash is not really necessary when you have equity in your own home. Having sufficient assets against which to borrow is all that is required and in this way, you can borrow the full amount plus all the additional costs.

Superannuation, the Pension, What are my options looking like at Retirement?
Over the past 10 years the Federal Government has made it harder to qualify for the aged pension and has indicated it will make it even tougher in the future. The introduction of the assets test, deeming on savings accounts and changes to the treatment of shares and unit trusts have all ensured that fewer retirees will get the pension.

Retirement used to be a time to enjoy. Today it is a time to fear. Australia's retirees are fast becoming the nation's poor, squeezed by lower interest rates, which is slashing the income of their investments and starving them of funds to pay bills.

Today's retirees are providing a sobering lesson for future generations. Poor retirement planning has cost them their lifestyle. Retiring rich means starting to plan early and building a separate retirement nest egg on top of superannuation. The Government's new superannuation rules will limit most superannuation payouts to $400,000. For many this will simply not be enough to maintain their present lifestyle in retirement.

Is property investment still OK if inflation is low?
It's not so much the absolute capital growth rate that is important, but rather the growth relative to inflation. With capital growth historically averaging between 2% and 4% over and above inflation, even if inflation were to fall, we would still expect property to perform at this level above inflation. In America, where annual inflation has been slightly lower at around 6%, property growth has averaged more than 8% per year, which is still that couple of percent above inflation.

Everything needs to be put in true perspective and if inflation, and consequently capital growth, is lower relative to everything else, property should still be better than any other form of investment. Furthermore, interest rates would have to fall, reducing the cost of the loan to such an extent that the overall rate of return (above inflation) on the property investment should remain about the same.

Why do some property investments work better than others for their owners .... and what can I do to make sure my property investments do perform?
Essentially, property investment performance means minimising your 'out of pocket' expenses and maximising your potential capital growth. Some of the reasons property investments fail to perform as expected can include:

1. The loan taken out was structured wrongly
2. The loan was taken out in the wrong name
3. “High maintenance" houses were purchased
4. Investors missed out on claiming the highest possible amount in non-cash tax deductions
5. Low rents and high vacancy periods
6. Paying too much for the property in the first place
7. Low capital growth potential

These mistakes can easily be avoided. Before investing, contact us for free advice on which price range, which area and type of property is most suitable for your situation.

What if we can't find a tenant for our investment property?
Vacancy has two main causes-firstly, the amount of rent being asked, and secondly, the location of the property. If you can't find a tenant at the advertised rent then lower the rent until a suitable tenant is found. A good property manager understands this and will direct you accordingly. Your rental should be in a good location where there is a demand for rental properties; e.g. close to transport, shops, schools and employment.
The 70% home ownership ratio is the main reason for the security, reliability, and predictability of residential property as an investment. Owner occupiers, people who own their own homes, do not panic and rush to sell as investors do in some other sectors such as industrial and commercial real estate, or as company shareholders do when times get tough. The residential property market is not dominated by investors. This provides a built-in safety net for the residential property market. Residential property is the only investment market not dominated by investors. It forms a barrier against substantial down-side in the market place.
That is a unique feature of residential property as opposed to all other investment vehicles. Everybody must be housed, whether they rent, or are owner occupiers. No matter who the occupier is, the capital growth is still generated for the owner. The safety of residential property is underpinned by owner occupiers who do not sell if a market lacks strength. They need more compelling reasons, are better placed to hold through softer markets and continue to need a roof over their heads.

We own our own house but want to borrow money against this house to build a bigger and better house in which to live. We would still like to keep the one we're living in now as a rental property. Is the loan tax deductible?
The short answer is no, the loan is not tax deductible. This is a classic situation in which many property owners find themselves when they first decide to upgrade. Assessing whether interest on a loan is tax deductible depends on the purpose of the loan – not the collateral for the loan. In this case, the purpose of the loan is clearly to build a new home and not for the purpose of producing income. This situation is a double loss. Not only would the interest on the loan not be tax-deductible, but the rent from the investment property would be taxed at the highest marginal tax rate.
A simple solution could be to sell the first home and put the proceeds into the new home; you would then borrow to buy a rental property, using the equity in the new home as collateral. The interest on the loan would then be tax-deductible and instead of paying tax, a tax refund would more likely result.

What if the mortgage company goes bust?
You have their money so you cannot lose it in the same way as if the company has yours. The title of the property is in your name and at all times you have legal ownership. The mortgagee has no right of claim to your property – unless of course you renege on your mortgage agreement. The only claim is on the money borrowed, not your property. Another financial institution may take over the defunct company or you may have the slight inconvenience and expense of refinancing elsewhere.

How do I pick the best area for capital growth?
Although it is human nature to want to find a bargain in an area of great capital growth, we believe it is false economy to spend a huge amount of time searching elsewhere for gems that are probably buried in your own backyard. It is virtually impossible, and really unnecessary, to gauge just where the most valuable suburbs will be in the future. History has shown that reasonably well-located property should follow the pattern of around 10 to 11% capital growth over the long-term. If your property achieves better than this, it's more likely good luck than good selection. Rather than spending weekend after weekend driving from one side of the city to the other, you can maximise your returns and better manage your investment by organising your finances in the best possible way and ensuring that you pay only fair market value.

What if interest rates rise?
Never before have fixed interest rates been so competitive. Major banks are offering 10 year fixed rate deals that can take all the guess work and stress out of this decision. A choice between variable and fixed must be made by the investor and should be carefully judged by the amount of debt and the security of your tenure at your place of employment. In general we recommend fixed-interest only loans for investment properties. If rates rise, then you are insulated against rising repayments. On the other hand, if rates fall you should still be smiling. Have you noticed how low interest rates are usually followed by an increase in property prices? Also, if variable rates do rise, the tax refund buffers you.

Most people seem to emphasise position, position, position. Should I buy prime residential property?
Property in prime locations does experience strong capital growth, perhaps slightly higher than normal, however the real return cannot be measured by the growth alone. There is not much point in purchasing a property one street back from the main shops if you have borrowed money using a principal and interest loan over 10 years with an interest rate of 18% and the property is so run down that nobody wants to rent it. We believe that property that is well-located, properly financed and properly managed will outperform property selected on the basis of position alone.

What if real estate prices stagnate?
Holding onto the house for at least 10 years should ensure a buffer against any cycles in the market. It's important to keep sight of long-term goals and not be distracted by any short-term hiccups. What happens to property values from one Christmas to the next should not concern you and although property can be cyclical, history shows that around 10% to 11% growth can be achieved long-term. More importantly, long-term property growth has performed at several percent above inflation.

Do I have to get deeply involved if I invest in real estate?
No! Real estate is only the vehicle for building wealth – a means to an end and not the end itself. The great thing about property investment is that you can do as little or as much as you want to. You can do all the maintenance and bookwork yourself, or you can employ someone to do it all for you. The returns from property can be so great that you can afford to pay to have all those things done that you don't like doing or don't have time for – they're tax deductible anyway. A good property manager helps and he can do most things from paying the rates to arranging for the shower to be fixed or making insurance claims if necessary. The degree of involvement is entirely up to you. While doing everything yourself can increase your overall returns, weigh up the real cost in terms of family life and your peace of mind.

Am I better off buying one property for $600,000 or two for $300,000?
Generally, it is better to buy more property at the cheaper price, but this depends entirely on the area in which you are buying. A $600,000 property in the inner city may be the bottom quarter of the market in that area, whereas a $600,000 property in a provincial town would probably be a mansion. In the former case, a $600,000 property would be OK but not so in the latter for a number of reasons. Firstly, a property in the lower end of the market has a higher rental yield, which results in a better cash flow. Secondly, the lower rent should attract more tenants. Thirdly, if you wish to sell on your retirement, there's more flexibility in selling one small property rather than one large one. And finally, if you're selling property in the lower quarter of the market, you should attract other investors as well as first-home buyers, so there should be more potential purchasers.

I've spent a long time looking for a good property but I seem to keep missing out on the bargains. How long should I look before buying an investment property?
If you are investing longer-term, there's no need to spend six months of your valuable weekends in a real estate agent's car chasing that elusive bargain. Time heals all wounds, and so long as you pay fair market price, you should still achieve sound capital growth.

With an interest-only loan, when do I actually get to own the property?
While it is true that, with an interest-only loan, there is a perpetual debt on the property, you retain title to the property at all times. Whether you ever get to "own" the property outright is irrelevant. What is important is your equity in the property and how fast it increases over time. Eventually the debt will be insignificant compared to the property value. Reducing the principal reduces the interest claimable and you'll then pay tax on the rent. So why pay it out? The only loans you should pay out while you are building wealth are those that are not tax deductible – such as the loan on your own home or car.

We were brought up to believe that we shouldn't borrow money. Were Mum and Dad wrong?
Yes and no! The golden rule of borrowing money is to borrow for appreciating assets such as property, not for consumables that depreciate in value. Our parents were right in deterring us from borrowing money for cars etc, which ultimately are worthless. However, no one bothered to explain to them that debt, if used for appreciating assets such as property, is a most important tool in building wealth.

Why hasn't my accountant told me everything about investing in property?
When you go to the garage for petrol, does the mechanic come running out to suggest that your brakes need checking or that it's time for a tune up? We probably expect too much of accountants. They should be able to answer all of your questions competently, but don't expect them to be creative in guiding your wealth creation program. Accountants are usually specialists in their area of expertise – accounting. They will expertly complete the tax forms for you after you have provided them with all the figures. They are usually not specialists in property investment and should never be relied on as such. However, there are some accountants who do specialise in property – and even have some rental property of their own.