How am I going to afford to buy an investment property?

Owning an investment property can be quite inexpensive if done correctly. You could run an investment property for as little as $50 per week. What you must decide is how important owning that investment is to you and your life plans compared to what you could spend that $50 on right now. It may require a short term trade-off but the longer term gain could be much more valuable, both for your wealth and your lifestyle.

What is a negatively geared property?

The term 'negatively geared' refers to the situation where your cash outflow to maintain an investment exceeds your cash income from that investment. For example, if the mortgage payment on your residential property exceeds the rental income, it's said to be negatively geared. In other words, the investment income is negative, which allows you to claim the interest costs on your mortgage as a 100% tax deduction.

Why purchase new properties rather than old properties?

While new properties seem more expensive, they also offer the best tax benefits. What's more, tenants demand favors new apartments because they're seeking the facilities only these developments can offer, such as security systems, car parking, balconies as well as pools and gyms, and even internet-wiring. Concierge facilities are also becoming increasingly important, which older apartments rarely offer.

Should I invest in property or shares?

The reason property is such a powerful way to build wealth is due to one key concept: leverage. Leverage is your ability to magnify your returns by building your wealth using - 'leveraging' - other people's money. (In this case, usually the bank's money.)

When is the best time to invest?

There will never be an absolute best time to invest. If you plan to invest for the long term, the sooner you buy the quicker you'll be on the path to financial freedom. Don't wait too long for the bargain of the century either. The time it takes to find one (if you ever) could have been better spent doing more enjoyable things in life. Just remember, an investment property will be one of the biggest purchases you ever make, so it's important you get the professional advice before making any decision.

What type of property should I buy?

You should purchase property at a level which is comfortable for you to manage financially and one which will give you the best potential for long term capital growth. You also want to buy something that's going to be attracting good tenants. So securing a property that's positioned close to transport, shopping centers, community amenities and parks is also wise.

Isn't the property market about to burst?

Throughout history there have been highs and lows in the property market. Still, despite periodic recessions, today's property prices are much higher than they were 10 years ago. So we feel pretty safe in assuming that prices 10 years from now will be higher than they are today. That said, just like the share traders, successful property investors see economic downturn as one of the most opportune times to invest in under-valued assets. By investing in the best units in the best blocks during slow times, they will be ready to reap the rewards of future recovery.

Why purchase "off-the-plan"?

One main advantage is that you get to buy a property at today's price but avoid any of the associated running costs until the development is completed, anywhere from 12 months to 3 years away. If the market grows during that time, you will still receive the additional capital gain without having had to spend another cent. Purchase through a company with good developer relationships and you may even enjoy additional advantages, like being able to select the best units before public release.

Do I need to have a deposit?

If you have equity in an existing property, you may be able to utilize it without having to put any cash towards the new investment (subject to equity available). You can borrow against the equity in your home for the full purchase price plus costs.

What if I am saving for a deposit, how can I still buy?

Speak to one of our consultants who can show you how you may be able to acquire an investment property for as little as a 5% deposit.

How much can I afford to borrow?

Banks have two main criteria for lending money. One is the equity you have and the other is the income you earn. If you have good equity but a low income and other debts, this will limit how much the banks will be willing to lend. It's important you speak to a mortgage broker or your bank to see what your maximum borrowing capacity is so you can decide what investment property you can afford to buy.

I am concerned about borrowing money and going into a large debt?

Most of us have all gone in debt at some time, usually to a buy car; go on a holiday, or to buy something on a credit card. At the end, you usually have nothing to show for it or something that is worth a lot less than the original purchase price. This kind of debt is bad debt.

Ideally, you should only borrow for assets that are going to appreciate in value. So it's important you do your figures carefully. Make sure you conduct a complete property analysis of borrowing and running costs. Also budget for worst-case scenarios like the loss of a job, tenant vacancies and interest rates increases. If you are careful and do your sums correctly, the ease of investing may surprise you. It is all in the planning, preparation and structure of the investment that makes the difference between having a good investment and a bad one.

The bank says I can't borrow although I know I can afford the repayments?
It's extremely important when applying for a loan that you go to someone who knows what they are talking about and is independent. We recommend using a mortgage broker who has access to most of the major banks and can direct you to the best lender for your particular needs.

What if interest rates rise?

Given that interest rates are at their lowest in over 40 years, it's safe to say they're going to increase. The Reserve Bank of Australia (which sets interest rates) has indicated that they have a neutral cash position of 4-6% which means rates could rise to between 7-9% p.a. That's good news because it's unlikely we will return to the 18% p.a. interest rates of the late 1980s.

What you must be aware of is your ability to maintain repayments if interest rates increase. An appropriate cash flow model will be able to illustrate the effects of interest rate rises and your advisor/consultant should be able to decide with you the most appropriate level of commitment.

Why do I want an interest-only loan?

The idea of an interest-only loan is that you do not ever want to pay off the debt. The goal is that the value of the property will grow over time, and here in Australia property seems to double in price about every ten years, which means if you buy a $400,000 property today it will be worth $800,000 in ten years time. Owning a property outright is not the objective. The aim is to be able to manage and service as much debt as you can comfortably afford to do and wait for the equity in your properties to increase.

As a first home buyer, can I claim the Federal Government's $7,000 rebate?

Yes, you can if you satisfy the following criteria:
1. The apartment must be your first home in Australia as an owner. That means you must live in it and not use it for rental.
2. You must be an Australian Citizen or Australian Permanent Resident.
3. If you are married or living in a de facto relationship, you must make a joint application with your partner. Neither of you may have owned a home before, individually or with any other person.

What happens with my deposit when I purchase an apartment off-the-plan?

Off-the-plan purchasing provides for delayed settlement. You only pay 10% deposit which is held in a legislated trust account. By law the 10% cannot be used by the developer until the property is fully completed. The full balance is paid on completion, often giving you at least 12 months to maximize and organize your financial affairs.

What happens if I can't find a Tenant?

If a building is in a reasonable state of repair and the rent is fair, you can find a tenant for it. This is particularly true of the lower end of the rental market. If there happens to be a protracted vacancy rate, it may be a matter of adjusting the rent slightly. With the right property management in place, however, vacancy should not be a problem. A good manager - either an onsite manager or local real estate agent - should have no difficulty finding suitable tenants with whom you can foster a long term relationship.

What happens if the property is damaged or if I have a bad tenant?

A comprehensive insurance policy will protect your property against most forms of damage. The cost of the insurance is minimal and is tax deductible. As a minimum, your policy should provide cover against tenants defaulting, damage to your property and legal fees to recover costs. You wouldn't drive a $300,000 car without insurance, so why wouldn't you insure your investment?

Investing in Australia by foreigners

Can foreigners invest in Australia?

There are restrictions on the type of property international investors can acquire. Existing residential homes and apartments cannot be acquired. However, most other forms of real estate can be including:
- New apartments/condominiums
- New homes
- vacant land to build a new home on, and
- Commercial property.

The majority of real estate is held on freehold title, which includes strata titles, however, some leasehold land titles do exist.
 
Foreign Investment Review Board
All applications to purchase property by foreign owned entities are required to be applied for through the authority known as the Foreign Investment Review Board (FIRB). There are some requirements (laws) regarding purchases stipulated by the Federal Government of Australia which must be adhered to. A good Australian accountant and solicitor will be required to make sure you meet all of the criteria and will guide you through the process of acquiring your new investment property.

Finance The easy way- Locating an outstanding investment opportunity is the first step. Securing your property is the next.

At cityview, we can refer you to experienced brokers who can help answer a range of questions, including:
• Which lender should I use?
• How much can I borrow?
• What type of loan is the best?
• What deposit will I need?
• What are my obligations as a borrower?
• How can I budget for my loan?

A mortgage broker can also help to arrange the most advantageous loan structure for you as well as an effective financial loan structure to manage all your investments.