Investment Guide. home loans

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1 Investment Guide home loans

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3 Your investment journey With the right finance solution, a property investment can build your wealth and improve your financial security. There are hundreds of thousands of property investors in Australia, and like you they re only too aware of the benefits of an effective strategy. So when you re ready to build an investment property portfolio, it makes sense to have the team at Resolve Finance with you every step of the way. We understand the importance of ensuring your loan is structured to maximise the property s capital growth, rental income and gearing potential. inheritance or simply renting out your investment property to a family member. Whatever your reasons for considering property investment, speak to your Resolve mortgage broker to tailor the best solution for your needs. Why do people invest? For many years, property investment has proven to be a fantastic way to build wealth with a long term investment strategy. Your property investment can be tailored to your individual situation and requirements, and this flexibility is invaluable to many people. You can choose the type of property you invest in and how much input and work is required from you over the course of the strategy, along with how long you want your investment strategy to last. And of course, investing in property can give you the opportunity to provide for your family. This may be via

4 Why invest The benefits. Below are some of the key benefits of investing in a property. A regular stream of rental income. An appealing aspect of property investment is the ability to earn a regular stream of rental income. Depending on the schedule you have chosen, you can expect regular rent payments that could begin from day one. Rental income is also for the fixed term of the lease meaning it can help greatly with your personal cash flow. Even when the lease expires many tenants continue to pay week to week rent until a new lease is signed. Generous tax benefits. For any investment, tax is an important factor to consider; luckily a rental property can deliver generous benefits. As a landlord, you have the ability to claim a tax deduction for a wide variety of expenses associated with owning a rental property. It is important to have a good Tax Accountant to make sure you have an effective tax strategy for your investment. A diverse market, a diverse investment. Having a diverse portfolio of assets plays a large role in growing and protecting personal wealth. Australia houses many different options in the property market and choices vary between states and territories such as: apartments versus freestanding houses and regional or capital city locations. Before making a decision speak to a Resolve mortgage broker today to ensure you are aware of your options and understand what investing could mean for you.

5 Questions to consider Before you begin your investment journey, it s important to consider the below. How much can you afford to borrow? It is important to sit down and look at your expenses and determine an amount that you can afford to borrow so that you do not struggle with your repayments. Your current financial position. Are you in a position to afford an investment property particularly during periods of vacancy and is a property that will attract the tenants you want in your budget? Where are you heading? Plan for the future and take into consideration weather you will be able to have the property for a long period of time. Ask yourself whether you will need to access your capital at some point in the near future. Your Resolve mortgage broker will be able to answer a lot of these questions for you, by taking a detailed look into your current financial situation which will make your journey to owning an investment property much smoother. How much money will you need? Take into consideration the upfront costs you might face and the ongoing maintenance expense of the property. Affordabiiity. It is not uncommon that in the first few years of being a landlord your property will be negatively geared. Put simply, this means It will cost more to own the property than it will be earning. You must be confident that your household budget can cope with the outflow of expenses.

6 Investment loans Your options. There are a number of ways to structure your property investment loan. Some of these include: Cash funds for deposit. If you are able to provide funds for your deposit without using equity in a current property you own, this option may work with your investment strategy. An investment loan using the equity in your home. Commercial finance. Commercial finance may be another option for your investment loan. Commercial loans, however, are very different from a standard investment loan, so talk to your Resolve Finance broker to discuss whether this type of finance is appropriate, and the options for commercial finance loans. You might choose any of these options for very different reasons, and each contains its own complexities and requirements to maximise your returns. That s why it s vital to work with your Resolve mortgage broker and the rest of our team to ensure that you are making informed investment decisions. If you have equity in your current home, you may be able to use that to form the deposit for your investment property. An investment loan may be set up differently to a standard home loan, so it s important that you re well informed before applying something your Resolve Finance broker can help you with. Investing through superannuation. Some people create a Self Managed Super Fund to purchase an investment property. This is a hands on approach that gives you complete control over the money saved in your superannuation.

7 Investment strategies What s right for you. Investing in property is not all about choosing the property, there are strategies used by experienced investors that suit their budget goals and needs. Below are the most common used. Yield focused strategy. This strategy is beneficial when you do not want to borrow heavily, or if you are seeking a source of additional income to live on. In some regional areas, rental yields can be as high as 10%, which is an exceptional return. Although, the long term price appreciation is unlikely to be as strong as a metropolitan property. It is also a possibility to find positively geared properties where the rent covers all the expenses of the property, with some extra income for you. Aiming for capital growth. The right property, in a great location and at the perfect price has the potential to deliver very rewarding rates of capital growth over time. If your goal is capital growth, it is vital that you can afford to hold onto the property until you see a substantial rise in the investments value. For some investors this is fine due to the tax relief that comes with negative gearing but it is important to do the sums to see if it is relevant to you. To learn more about the different investment strategies that exist, speak to a Resolve mortgage broker today as you will be guided in the direction that suits your needs.

8 The costs The two main types of costs you will encounter with investment property are upfront purchase expenses and the ongoing costs required to own and maintain the property. Upfront purchase costs. It is important to consider pre purchase inspection costs; this is an essential cost as it will eliminate the chance of unexpected problem. If investing in a unit, apartment or another building that involves separately owned units plus common property, a strata search is essential. This will identify a range of potential problems such as whether there are any disputes within the building. Stamp duty is a state government tax based on the price paid for the property. The standard borrowing costs that are likely to apply include: loan application fee, lenders valuation fee and lenders mortgage insurance. Ongoing costs. As a landlord, there will be ongoing costs associated with owning and tenanting your property. Many of these costs can be claimed on tax however, typical costs include: Accountant/tax agent fees. Body corporate fees. Council and water rates. Insurances Lease expenses & lost rental income. Land tax. Loan interest. Management fees paid to real estate agents. Letting and re-letting costs. Speak to a Resolve mortgage broker to develop strategies to plan for these costs. Legal fees, also known as conveyancing fees, cover the cost of having the property transferred out of the vendors name and into yours, which is normally completed by your solicitor.

9 Tax Everything in one concessions place What to take advantage off. Rental properties gain generous tax concessions that can put it ahead of other asset classes. The golden rule of investment Positive gearing. An investment is defined as being positively geared if it earns more in rental income than it costs to own. As profit is taxable, landlords of positively geared properties must set funds aside to cover the tax they will pay on the investment annually. property is to keep good records that are entirely separate to Your Resolve mortgage broker will go into in depth detail about those of your own home. These will be needed to prove your the tax situation you may face, leaving you feeling relieved and deductions if you are subject to a Tax Office audit. confident. Gearing. The term gearing, relevant to investing, refers to borrowing to buy an asset. Most investors use a form of gearing in relation to their mortgage or funding a rental property. Negative gearing. This occurs when the cost of owning a rental property is greater than the income generated each year. This in turn creates a taxable loss, which can then normally be offset against other incomes such as wage.

10 Making the big decisions Property options. What s available. Different properties tend to attract different types of tenants and each has their own form of ongoing costs. Below is an overview of what is available, to help you decide. Apartment. Can be more affordable whilst producing higher yields. Maintanence is easy through stata levies, which commonly covers the costs of repairs. Depreciation deductions are often greater for apartments as you may be able to claim a proportionate share of depreciation if the property has commonly owned facilities. House. The land components can enhance the potential for capital growth. Although maintenance is commonly higher on a house, they offer a greater scope to add value through initiatives such as renovations. Existing home. Purchasing an existing home offers the benefit of being able to see exactly what you are buying in terms of size, aspect, outlook and finish. The maintenance of an older home can be greater than that of a new one, which will impact your ongoing returns. The true market value of established homes can be determined on more comparable sales than with a new home. New home. A distinct advantage of purchasing a new home is that it should be defect free, making it more appealing to potential tenants. A new home can also offer greater depreciation benefits than an older property therefore; repair and maintenance costs should be lower initially. Depending on your tenants, you may be able to charge a premium rent on the premise that your property is new. Houses are more likely to offer a scarcity factor, which can underpin long term capital gains.

11 Tips for Everything in one deciding. place Choosing your property. When choosing an investment property, it s important to think with the head and not the heart. Location. When you are choosing a home to live in, you look for locations which offer benefits such as proximity to public transport, schools, shops and amenities. When you are choosing a rental property, this is also important. By reviewing suburbs within your budget and matching them with their location benefits, you should gain a clear insight into the areas that are best suited to your investment. Once you ve chosen your top location options, research the market in those areas. Look at elements such as: Vacancy rates. Sale prices. Rental prices. Projected population growth. Future infrastructure. What you should know. There are number of indicators for potential property growth, the most common are below: Property demand exceeds the supply. Prices are expected to increase in the near future. Neighbouring suburbs are experiencing great capital growth. Local developments are planned for the area. The location is home to thriving businesses and industries. Research and understanding is the key to a successful property investment. Take your time, understand your requirements, and ask professionals. At Resolve Finance, we are able to offer a complete solution to all your investment property needs.

12 Ownership options The various structures. Real estate can be held through a variety of titles so it is important to get the ownership structure right at the time of purchase to minimise title deed costs in the future. Investing as joint tenants. The ownership of the property would be split equally between two chosen people, with income and expenses also shared. Investing as a sole ( private) purchaser. Under this agreement, rental income is received only by you and expenses relating to the property can only be offset against your income. Investing through a trust. This is a suitable option for a positively geared property as trusts can be useful for distributing income in a tax effective way. Establishing a trust as well as maintenance can be difficult, therefore speaking to an accountant is crucial. Investing as tenants in common. In this situation, ownership is divided into units, with the level of ownership defined differently for each party. Commonly, if one of the parties has a higher income, the ownership may be divided 75/25. This allows for three quarters of the losses to be allocated to the higher income earner. Although, the same ratio would apply to income generated. Your Resolve Finance mortgage broker is aware of all investment ownership structures and will be able to guide you in the right direction. Investing through a company. Using a company structure for a rental property can have its advantages, especially if there is a large amount of co-owners. It is generally a rather easy process to sell shares if one owner chooses to exit the agreement. However, companies are very costly to set up and maintain, the legal requirements are also vast.

13 Why choose Resolve? Complete finance solutions. Buying a new home is such an exciting, busy and involved time, it s easy to get overwhelmed by the avalanche of details. That s why we built a one-stop-shop giving you one source for everything from home loans through to settlement and beyond. Whether you re a first home buyer or an experienced property investor, Resolve Finance offers you a complete financial solution. We stay with you throughout your journey. Access to a range of property and investment opportunities through our partners. All your finance needs can be met in one place, giving you consistency, continuity and service levels that other finance providers can t match. Whenever and however you need us, we re ready to help you achieve your goals. We have all the services you need to set you on the right path to a secure financial future, and we re committed to assisting and guiding you throughout the entire journey, from your first home through to wealth accumulation and your transition into retirement. With Resolve Finance, you ll have a finance expert in your corner every step of the way. The Resolve team s personal service gives you: Your own Resolve Finance mortgage broker, with access to home loans from a panel of over 28 lenders. Unique and niche Resolve Home Loan options to suit your specific needs. An integrated Conveyancing team. A complete Financial Planning service. Personal Finance and Insurance options.

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