Does a regional property investment stack up?

July, 2017 by

Many investors tend to focus on capital cities when seeking a location for an investment property. However, with a sensible approach and the right research, regional towns can be excellent locations for expanding your property portfolio.

Start by looking for towns with population and jobs growth, and a diversified regional economy supported by more than one or two key industries. These are indicators of a regional property market with potential, because the strength of a town’s local employment prospects will in turn underpin real estate values.

Take Mackay, for example, in Central Queensland. It is a service gateway to primary industries such as sugar cane and ethanol. It also has some Australia’s biggest cattle farms and it’s a servicing hub for several major mines. To find out more about the investment opportunities in Mackay, visit the Raine & Horne Mackay website at www.raineandhorne.com.au/mackay

Also, look for regional cities that are well-served by public transport, hospitals, schools and universities, as this will increase demand for residential properties. The NSW government for example announced in July as part of its South East and Tablelands Regional Plan 2036, $187 million has been allocated for the South East Regional Hospital at Bega and $120 million for the Goulburn Hospital redevelopment. There’s also $50 million for the redevelopment of Bowral Hospital. This infrastructure will help underpin longer-term population growth in these towns.

Across Australia, centres such as Toowoomba in Queensland, Wagga Wagga in NSW, WA’s Mandurah and South Australia’s Port Lincoln are other excellent examples of regional towns offering plenty of potential for long term capital appreciation.

Still, investing in regional towns is not a licence to print money, so it is important you contact a local Raine & Horne agent to help kick-start your research, or visit rh.com.au.

Tips for buying an investment property in a regional town

  • Research is critical for uncovering a successful regional real estate play, which generates decent capital growth and yield.
  • Look for regional towns with viable and growing economies and populations – the Australian Bureau of Statistics or the local council are great sources of data about the demographics of a town.
  • A regional town with excellent long-term growth prospects should have decent infrastructure in place – public transport, major roads, hospitals and schools.

How can I turbo-charge my rental returns?

July, 2017 by

There are many factors investors can control to ensure good capital returns are delivered by a rental property.

From the outset, try to avoid buying at the peak of the market – although without the help of a reliable crystal ball, this is easier said than done.

What you do have more control over is the ability to pay a fair price for a property that is in a good position in a strongly performing suburb or regional town. The property should have some aesthetic appeal (or the potential for), and will have unique and positive features. For example, it might have rear lane access, which is a major winner with owners and tenants in some of our busier inner-city locations. A quality property will also be in good order structurally to keep maintenance and running costs low.

To enhance ongoing rental returns it’s critical that you secure reliable tenants on long-term leases – your Raine & Horne property manager will help here. That said, you still need to keep up with maintenance of the property, having adequate insurance cover and planning for taxes. Your accountant should be able to help you understand your eligibility for depreciation allowances and maintain good bookkeeping records to control costs.

Also, achieving the best investment return possible requires you to raise the rent from time to time. That said, the state and territory governments have guidelines about when, and how rents can be increased that must be followed.

In Australia, if you and your tenant are currently under a valid and on-going Residential Tenancy Agreement, unless stipulated in the lease, you cannot legally issue a rental increase until the terms of the agreement have expired. However, it is usually a good strategy to issue a rental increase to a tenant in the same month that the agreement expires.

As an unwritten rule, the average property rent in Australia increases about 5% per annum ($20 a year for a $400 per week property). However, every suburb is different, and depending on demand, the quality of the property and market conditions, an increase could be above or below 5% per annum.

Why should I have landlord insurance?

July, 2017 by

While most tenants take good care of a rental property, there are always the exceptions to the rule. Moreover, intentional damage is not generally covered by a standard home insurance or body corporate policy.

At the same time, standard home buildings and contents policies don’t usually cover malicious or intentional damage by tenants or the failure to pay rent. This is where ‘landlord insurance’ comes in handy. Landlord insurance is a policy that covers a property owner from financial losses connected with their rental property. It usually covers the following events:

  • Malicious or intentional damage to the property by a tenant or their guests
  • Theft by the tenant or their guests
  • Loss of rent if the tenant defaults on their payments
  • Liability, including for a claim against you by the tenant, and
  • Legal expenses incurred in taking action against a tenant.

It’s important to remember that not all landlord protection policies are the same. Some, for instance, are designed to be taken out in addition to a typical home and contents or strata title policy, while others are more comprehensive. Meanwhile, other policies allow you to take out cover for the contents of the property, which is useful if you rent out a partially or fully furnished property.

If you are renting out a furnished apartment, you might need to check whether a landlord insurance policy will extend to covering damage to furniture, whitegoods and the like. If it doesn’t, it might be worth seeking out separate contents insurance to cover damage to the furniture you have made available to your tenants.

If you own a short-stay rental property, such as a holiday rental, which is professionally managed by a Raine & Horne property manager, you can get a short-stay landlord policy which covers situations unique to holiday properties.

Finally, landlord insurance might be tax deductible, but be sure to check with your accountant before making a claim. To find a suitable landlord insurance policy that matches your circumstances, contact Our Broker on 1800 913 677.

What are some tax tips to maximise my commercial property investment?

With the end of the financial year approaching fast, it’s time for investors and tenants to ensure they are maximising the tax benefits attached to owning or leasing a commercial property.

For owners

Start your tax-time preparation by considering the type of holding structure you’re using to retain the commercial property. This decision will impact the amount of tax you’ll pay this financial year. For example, self-managed super funds can hold commercial properties, which may enable you to pay less tax than if the asset is held as a direct investment. If you’re unsure about the most appropriate tax structure for your commercial investment property, talk with your accountant or a financial planner.

On an ongoing basis, it’s critical that owners have their paperwork in order to avoid the glare of the Australian Tax Office (ATO). This includes keeping copies of tax returns, rental agreements, quantity surveyor reports, loan statements, and receipts for deductions.

Remember that repairs and maintenance expenses for your commercial investment are immediately deductible, while capital improvements to the property are claimed as a depreciation deduction over a longer period of time. If you’re unsure about the difference between a depreciable item and an immediate deduction, seek some clarity from your accountant.

Also, you can’t claim expenses not actually paid by you, such as water or electricity charges paid by your lessees (tenants). Lastly, if a commercial property is fully tenanted, owners can avoid paying GST when buying or selling a commercial property.

For lessees

Rental payments on commercial premises are tax deductible for lessees. Also if you are a lessee, pay careful attention to non-cash incentives related to the property’s fit-out. As a general rule, lease incentives received by a tenant are treated as assessable income by the tax office. If you’re unsure, a quick call to your accountant will prove to be time well spent.

Some tenants may also choose to pre-pay a lease before 30 June. However, this may not deliver an extra deduction, due to the tax structure they have chosen to use.

As the lessee, the ATO advises that you may be able to claim GST credits for the GST included in the rent if you, and the lessor, are registered, or required to be registered, for GST.

The Australian Tax Office website outlines the various tax implications for commercial property tenants and owners.

What is the value of having a depreciation schedule?

May, 2017 by

Before you know it, 30 June will be here. If you haven’t already, organise your depreciation schedule so you don’t miss out on valuable deductions.

Eighty per cent of landlords fail to claim the maximum depreciation deductions available, according to quantity surveying firm BMT Tax Depreciation.

For some, it’s simply because they haven’t yet had a depreciation schedule completed. This is a report done by a quantity surveyor who assesses the building, plant and equipment on the property, and the deductions that can be claimed. To have a depreciation schedule done generally costs between $650 and $700, which is 100% tax deductible.

Other investors fail to make deductions for depreciation because they’re not aware of the benefits. Deductions are available for:

  • Cost of building structure. For properties or structural work completed after 15 September 1987, property investors can claim 2.5% of the cost of the building structure annually for up to 40 years. Additional deductions may be available for some structural renovations, even if they were completed by a previous owner.
  • Plant and equipment. Property investors can claim between 10% and 20% of the value of plant and equipment such as carpets, blinds, hot water systems, air conditioners, cook tops and smoke alarms.

On average, investors can claim between $5,000 and $10,000 in depreciation deductions in the first financial year alone.

The greatest depreciation benefits come from new homes, with up to 60% of the purchase price potentially tax deductible over the life of the property. According to BMT, a brand-new residential property valued at $300,000 could potentially provide a landlord with cumulative depreciation claims for the structural component of $30,000 over a 5-year period.[i] And don’t forget, on top of that the landlord can claim depreciation deductions for plant and equipment within the property. That said, it’s important to note that deductions are calculated on a case-by-case basis and every depreciation assessment is different.

Significant tax allowances won’t always offset some of the costs of purchasing or building a brand-new investment home, and that’s also where a tax depreciation schedule can prove useful.

[i] http://www.bmtqs.com.au/rental-investment-property-depreciation.aspx

What is the difference between a property repair and a capital improvement?

May, 2017 by

The Australian Tax Office (ATO) considers ‘repairs’ to an investment property differently to ‘capital improvements’.

A repair is work completed to mend a defect, damage or deterioration to a rental property – and might involve the replacement of a broken window, a faulty electrical appliance or a new coat of paint. In other words, a repair returns an investment home to its original state and can be claimed as a deduction in the current tax year.

Other costs that can be claimed as an immediate deduction in the income year you incur the expense include: advertising for tenants, bank charges, body corporate fees and charges, cleaning, council rates, electricity and gas, gardening and lawn mowing, in-house audio and video service charges and building insurances. On the flipside, the ATO draws a line at expenses such as acquisition and disposal costs of the property. Also expenses not actually incurred by you, such as water or electricity usage charges borne by your tenants won’t be allowed as deductions.

If the work completed improves the value of the property, it is considered by the ATO to be a capital improvement and the expense is claimed over a number of years via ‘depreciation’ – usually at the rate of 2.5% per year in the 40 years following construction, according to www.ato.gov.au. A capital improvement can be anything from a major renovation to a new gazebo or carport. It also may be as simple as replacing a tired wooden paling perimetre with the latest in brick and wood fencing.

To add to the complexity, when you buy an investment property, there are often items that need repairing before you can lease it to tenants. The ATO calls these expenses, ‘initial repairs’ and they can’t be claimed as deductions or depreciated as improvements. Instead, they are considered part of the costs of buying the property and may be included in the capital gains tax (CGT) cost base. In other words, these expenses can be used to reduce your CGT liability when the time arrives to sell the property.

If you’re unclear about what constitutes a repair or capital improvement, be sure to speak with your accountant before 30 June 2017.

 

[1] http://www.bmtqs.com.au/rental-investment-property-depreciation.aspx

Why do I need landlord insurance for my rental property?

April, 2017 by

Our thoughts go out to everyone in Queensland and NSW affected by Cyclone Debbie and its aftermath. This extreme weather event is the latest reminder of just how vital it is to have adequate landlord insurance in place.

In the event of floods, fires and other natural disasters, landlord insurance covers damage to the structure of your building and for lost rental income until repairs are complete and your property is liveable again. It also covers damage to contents that belong to a landlord, such as carpets, curtains and furnishings. However, it’s worth making sure your tenants are aware that if they want their belongings to be covered, they will need to purchase their own insurance policy.

All insurance policies are not created equal, so it’s essential to read the find print. When it comes to flooding, such as that after Cyclone Debbie, check if your policy has any exclusions. For instance, some policies don’t cover flooding caused by a river bursting its banks, which might be an important consideration depending on where your property’s located. Also keep an eye out for any caps the insurer puts on payouts or conditions that limit payouts, and be aware that you may need to pay an extra charge to cover certain types of damage.

If your rental property is a unit in a strata-title building, check the body corporate’s insurance policy. If you’re worried it falls short, you have the option to buy “strata title protection” from an insurer.

Landlord insurance may also protect you from loss of income when tenants default on their rent and from property damage caused by tenants, but again it’s important to check what’s covered and for how long the insurer will pay out for rental default.

For peace of mind, it’s smart to research a range of insurers and policy options, so you can compare premiums, coverage and claims handling processes. Consider contacting RH Assist on 1800 960 230 or help@rhassist.com.au to discuss your needs and the landlord insurance products they offer

What is rentvesting?

April, 2017 by

Housing affordability has been a hot topic of late in the key capital cities, especially in relation to first home buyers. Some have taken an innovative approach to getting their foot in the door: rentvesting. A rentvestor buys a property as an investment and rents it out to a tenant, while renting and living in another property.

Industry research has shown that the number of rentvestors has grown to the point where they account for 3% of first home buyers in Australia.

Proponents of rentvesting say that in the country’s more expensive real estate markets it gives people a way to live in the type of home they want but can’t afford to buy, while at the same time enabling them to get into the property market and invest in their financial future. For some, rentvesting is a way to save a deposit on the home they really want to live in. Others enjoy the flexibility of renting so they can move if they switch jobs. There are tax benefits to rentvesting, too, as the interest you pay on the loan for your investment property can be claimed as a deduction, along with accounting and body corporate fees, cleaning repairs and insurance.

Whether rentvesting is the right choice depends on your individual circumstances. For those who are considering it, there are several key factors to look for in a property. You will want to buy in an affordable location where homes are expected to appreciate in value at a healthy rate, and that tenants find appealing. Infrastructure is often what underlies all of those factors – for instance, good public transport, access to major roadways, and proximity to a CBD, schools and universities, retail, hospitals and services. Nearby employment opportunities can also make a significant contribution.

Some first home buyers are taking another approach: buying an investment property and living with Mum and Dad, rather than renting a place to live. The same industry research showed that’s what 13% of first home-buyers in Australia are doing. In NSW the figure jumps to 24%, and in Victoria it’s 20% – it’s little wonder, given that Sydney and Melbourne are our most popular state capitals.

Finally, many property managers prefer tenants who own investments properties. It’s often a good indication that a tenant will appreciate the value of the asset they’re renting.

What are some tips for investment property success?

March, 2017 by

If you’re new to property investing, taking the time to put in the research to find a quality, well-located asset will put you on the path to financial success.

As part of the journey to property success, you need to get your investment strategy right. For starters, residential real estate is generally speaking a long term investment. Consequently, holding your property for an extended period, and using the generous tax incentives, such as depreciation and negative gearing, can help pay for it over time.

That said, the ultimate indicator of investment success is capital growth. Therefore as we mentioned above, a winning investment property will be well-located, and come with a quality build standard. Also avoid, where possible, properties that won’t appeal to prospective tenants. Choose properties that offer a suitable layout, plenty of natural light, and air-conditioning, as properties with these features are highly desired by renters. Be mindful that tenants want properties that are well-served with ample transport, entertainment options, schools, retail precincts and so on.

Inspect several properties before you buy. This is part of the legwork needed to find a suitable investment. The industry leading Raine & Horne website (www.rh.com.au) will be a valuable tool in assisting your search.

Typically you should treat the purchase of an investment property like any other major business decision. This means ensuring the numbers stack up and all the boxes mentioned above are ticked. That said, it’s acceptable to choose an investment property that excites you, offers some notable features and is in an excellent location. In combination with a suitable purchase price, these features will attract a steady flow of tenants and make a difference to your investment returns long-term.

On the issue of tenants, you need to choose wisely, and this is where a Raine & Horne property manager will prove indispensable. A good quality tenant is someone who will pay the rent on time and look after your property. To find a suitable tenant, a Raine & Horne property manager will follow a thorough screening process, which includes scrutinising references and the history of potential tenants.

If you would like more information about investment property opportunities anywhere in Australia, please visit the Raine & Horne website at www.rh,com.au, or contact a Raine & Horne agent directly, who will be able to assist you through the buying process and answer your questions.

Why would I use a self managed super fund (SMSF) to invest in a commercial property?

March, 2017 by

If you’re seeking a high-yield investment for your self managed super fund, it’s hard to go past a commercial property asset such as a small office, a retail space or industrial unit.

Think of it this way. Darwin apartments are producing average gross yields of 6%, which is the highest return of any residential capital city sub-market in Australia, according to CoreLogic. That said, a gross yield of 6% is often the starting point for commercial property, which to be fair, is generally more about income returns than capital growth.

Moreover, using your SMSF to purchase a commercial property has additional benefits. For example, a commercial property purchased through an SMSF can be leased by a business operated by a member of the fund. Even better still, a DIY superfund can invest 100% of its money in commercial real estate, if a member operates a business through the fund.

An SMSF can also borrow to purchase a commercial property, which is a great option for a member if he or she is seeking to expand the business. What’s more, your business can pay the lease for the commercial space to a member’s superfund.

Before buying into a commercial real estate property with your superfund, be sure to seek some finance advice. At the same time, be aware, that anyone, including your accountant, who gives you advice about an SMSF, must have an Australian Financial Services Licence (AFSL). ASIC Connect’s Professional Registers will tell you if the company or person holds an AFSL.

In the meantime, if you’re new to commercial property investment, be sure to contact your local office of Raine & Horne Commercial. Since our launch in 1984, Raine & Horne Commercial has been an active market participant and is now the largest commercial property group in Australia, with over 35 offices servicing every state capital, key regional growth centres and the Asia-Pacific region.

Top