Smart Property Investment Basics for 2012
Along with shares, investing in residential property is one of the most favoured ways to build wealth in Australia. For many Australians, property investment forms an important part of their plans for financial security and retirement. These practical strategies will provide some useful insights for new property investors, although it’s advisable to consult accountants in Sydney or your local area for specific advice on tax and optimising your investment strategy.
Capital Gains Tax Discount
Capital Gains Tax (‘CGT’) applies to property acquired after September 20, 1985. However, there are many exemptions to this rule. For example, the main residence is not subject to CGT, and a 50 per cent discount to the CGT applies when the property is held for at least 12 months, subject to some limitations. CGT will have significant implications for investors who are intending to sell their property in the near future.
Buying Low Maintenance Property
Unless the investor has plenty of time to renovate or improve their property, it’s a good idea to buy low maintenance property. Relatively newer properties will save you outlays on repairs and upkeep.
Buying into a strata scheme (or body corporate) can also reduce the need for garden upkeep or other separate maintenance costs. Many strata scheme fees cover property insurance, garden maintenance, paint, and other issues such as termite infestations.
New properties have the added benefit of significant depreciation write downs, allowing you to deduct depreciation from your personal income tax. Services for personal and small business accounting in Sydney are able to provide assistance if you need information about negative gearing or depreciation.
Buy Well-Located High Density Property
Australia is experiencing a strong trend toward high density, inner city living, with the ABS predicting that the average household will have 2.4 to 2.5 people by 2031. High density properties such as units and apartments tend to be more affordable for first time investors. They also attract less land tax.
Buying close to the city centre or in high demand suburban hubs means your property will be more likely to experience a high capital and rental yield growth.
If you manage your own investment property, you’re usually permitted to claim tax deductions on any costs incurred in travelling to and from your investment properties.
One commonly cited difference between shares and property is the fact that property investment allows investors to leverage equity and/or a deposit for borrowing to buy. Mortgages can be secured for up to 90 per cent of the price of the property.
As the investor holds the property, the equity that can be drawn upon will increase with capital growth, allowing the investor to borrow more. Leveraging is therefore a very common strategy used by many investors.
Buy and Hold
First, property is a relatively illiquid investment; the costs that are associated with purchasing and disposing of property are fairly high. Second, property in Australia in metropolitan areas tends to double every 7 to 10 years.
For these reasons, many successful property investment portfolios are based on a buy and hold. Aim to buy and hold for good capital growth and rental returns.