Investing in property

CANSTAR - Outstanding value - Fixed Home Loan InvestorThere was a time when investing in property was a difficult process. Thankfully, it’s a process that is being constantly simplified and has become a viable investment option within reach of many property owners. We’ve put together a guide to make investing in property an accessible opportunity for as many people as possible.

Why invest in property?

You invest your money looking to provide a return in the future that’s greater than the initial investment. One of the most popular methods of investing is to buy a property with the expectation that the value of the property will grow over time. Below are some of the reasons why you’d choose to invest in property:
  • Potential capital growth – Property is an asset class that has appreciated in value over time. While there may be peaks and troughs in the property cycle, the Australian property market is considered one of the least volatile investment options. Based on the past performance of the Australian property market, over the long term, you can generally expect the value of your property to grow and provide a strong return on your initial investment.
  • Ongoing supplementary income – One of the other benefits of having an investment property is you receive ongoing income in the form of rent on a regular basis. This can be used to contribute to or even fully cover the loan repayments and maintenance costs on your investment property, meaning more of your day-to-day income is left in your own pocket for you to spend how you choose.
  • Direct involvement – Unlike many other investment types (shares, super and managed funds) where the most you can see of your investment is some numbers on a page, an investment in property means you have something tangible to show for the money you’ve invested. An added bonus is that you can renovate, decorate and personalise the property to suit you. These changes can add further value to your property, meaning your potential return at sale and the amount you can charge in rent increases too.
  • Tax benefits – When you invest in property, your investment may provide you with many benefits come tax time, provided you have the right investment structures in place. Through negative gearing you may be able to save considerable amounts of tax on your personal income. By taking a long term view and keeping your property for more than 12 months, you may be eligible to pay a reduced amount of capital gains tax on any profits from the sale of the property.

Things to consider

Setting up your investment property or properties to provide you with the best possible returns can be a complicated process. Here are a few helpful hints and points to discuss with your mortgage broker or credit professional when looking to invest:
  • Do your research – When considering purchasing an investment property, it’s always best to conduct research on existing rental properties in the area or areas you’re interested in. By looking at similar properties that are currently being advertised to be leased, you’ll gain an understanding of what you might expect to receive in rental income for your property. If you’re able to get hold of information about the property sales over the past 12-18 months, you can determine the value growth of the area. You should talk with real estate agents and your mortgage broker or credit professional about whether they think this is likely to continue.
  • Maintenance – Just like your own home, an investment property will require regular maintenance and upkeep, to ensure it’s in the best possible condition and to maximise the rent you can seek from your tenants. One thing to remember when considering renovations to an investment property is what effect they’ll have on the overall value of the property, compared to the cost of the improvements. You don’t want to spend your money on renovations that don’t increase the value of your property.
  • Plan for the long term – Investing in property is rarely a short-term investment. The instances where property values sky rocket providing large returns in a short period of time are few and far between. It may be best to plan to own your property for a number of years before you seek to sell. You should also keep in mind that turning the asset back into cash via a sale is a process that can take some time and, if rushed, can result in a lower sale price.
  • Protect yourself – In a perfect world your investment property would be leased by low maintenance tenants who always pay the rent on time, rarely contact you with requests and continuously renew their lease. Unfortunately, in reality, getting all three traits in one tenant is unlikely. For this reason it is best to make sure you’re in a position where you are protected if something should go wrong, such as tenants leaving unexpectedly and owing unpaid rent, costly emergency repairs to your property or a tenant breaking their lease early, resulting in  your property being untenanted. The two most popular methods of protecting yourself in these types of situations are to either keep a buffer of funds on hand for use when necessary (these could sit in an offset account to save you interest) or take out specific landlords insurance. Landlords insurance provides specialised cover for those unique situations that may affect property investors.  

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Our suitable products 

SmartSaver

A basic home loan with a competitive variable rate and no monthly fees. SmartSaver has the flexibility of redraw, voluntary repayments without penalty and a choice of principal and interest or interest only repayments.

Download the SmartSaver fact sheet

SmartFit

A fully featured variable home loan with a 100% offset account to maximise the benefits of any savings you build up by reducing the interest charged on your home loan. The SmartFit loan also offers up to 10 years of interest only repayments for investors looking to pay back only the interest incurred on the loan.

Download the SmartFit fact sheet

SmartFix

A fully featured home loan with the option to fix your interest rate from one to five years, with a 100% offset account. The locked in repayments over your fixed term allow you to take control of your budget, while still benefitting from the interest offset for any savings you build up. The SmartFix loan gives customers the choice of making interest only repayments to allow investors to pay back only the interest incurred on the loan.

Download the SmartFix fact sheet

SmartDoc

A home loan which allows self employed customers to sign an income declaration form with accountant verification, instead of providing proof of income documentation. The SmartDoc loan comes with a fully featured 100% offset account to reduce the interest charged and the option of up to 10 years of interest only repayments for investors to minimise their costs. Variable and fixed interest rates available.

Download the SmartDoc fact sheet 

 

Note: This does not constitute taxation advice and may not be relevant to everyone.  You should obtain independent expert advice on your individual circumstances.