Q & A
Frequently Asked Questions
How will I know if I can afford to buy home to live in, or an investment property?
The best way for us to determine if you can afford to buy a home to live in, or an investment property is to conduct a complete Client Needs Analysis to determine your real interests. The second step is to get a pre-approval from a mortgage broker.
Combine this with your Property Investment Analysis (for an Investment Property) it is quick to identify the actual “out of pocket” cost per week (if any) so you can see exactly what you can and can’t afford.
What does it mean for Property Buyers when the market is peaking or dropping?
A Traditionally the property cycle has highs and lows and that may depend on the specific area. If the location you are looking to buy has experienced extremely high growth for a period of time it is likely that this will not be sustained. It is inevitable that a fall will occur, like with any other investment.
How much cash up front will I need to buy an investment property?
This totally depends on your personal circumstances. If you have enough equity in your home and you are able to use this, then often no cash is required. If however you do not own any property then a cash amount for a deposit is needed. For an investment property it is usually 20% that will be needed.
How do I choose the right area to invest in?
It is important to do research on the different areas, but this can quickly become very confusing and is very time consuming. Speak to an investment consultant who have done this research for you.
We have information available on every suburb that we have properties available, which makes it easy for you. Population growth is integral to the growth of an area and this will depend on a variety of factors. This is not only important factors to consider when buying an investment property, you should keep it in mind when you buy a home to live in as well.
Can I do the research myself?
Yes, of course. Like anything, any person has the opportunity to do it themselves. The question is…. does everyone have the knowledge, capability, skills and time to do it themselves? We endeavor to do all the legwork for you and provide you with a complete report that will make it easier, save you time and money and give you the property solution you are looking for.
What will it cost to maintain an investment property?
When you buy a brand new property, the maintenance cost for the first 5 years will very little. After the five years, it depends on the tenants. Keep in mind that the maintenance costs are tax deductible.
Will I be able to claim travel cost to the area, on my tax return?
No. The cost for Travelling to an investment property can no longer be claimed, unless under special circumstances. It is best to ask your accountant to advise you on this.
Should I rather go directly to the bank for a loan or use a mortgage broker?
The different banks have different interest rates that they offer with different criteria that they qualify you for a loan. Using a good mortgage broker, will be to your advantage, since they deal with a variety of banks and can negotiate on your behalf. The mortgage broker will take your individual circumstances into consideration when arranging a home loan for you. If you don’t have a mortgage broker, we can recommend independent brokers who specialise in getting loans for investors as well as owner occupiers.
I’m self-employed – Can I use the equity in my family home to borrow money for an investment property?
There are many lenders who will lend to self-employed people with or without equity. The amount that you will be able to borrow will depend on your declared taxable income and can be irrespective of the amount of equity you have.
What happens when the property market slows?
The idea of investing in property, is to keep it as a long term investment and the market will always fluctuate. That is not considered a risk. It happens with any type of investment. You should make sure that it is structured correctly and the rent covers the loan repayments.
Can I syndicate with others – friends or family?
Yes, however you need to consult a financial planner in order to make this a successful venture. Keep in mind that there may be possible issues down the track if one member may want to or needs to sell and the others don’t.
What if my tenants don’t pay on time?
It is recommended that you use a good property manager who should take care of your asset. Remember there is the four weeks of bond to cover arrears.
Are New houses less solid than old double brick houses?
No. Construction methods have improved considerably and building legislation requires builders to build to a higher standard these days.
Is it true that the rental market in Queensland have had a fall?
The apartment market n Brisbane has an oversupply, which is creating rental prices to fall, however Qld and specifically the Sunshine Coast still has one of the lowest rental vacancy rates in Australia.
What does the term “leverage” mean?
Generally, when using the equity that you have in one property as a deposit, to invest in another one. Often the home you live in, can be leveraged to use as a deposit for an investment property. It is very common and sound practice, if it used wisely.
Am I only investing in the land when buying a house and land package, or is the house of value in the long run?
Both are in fact of value. A good quality house in an area which is in demand, is better than a large block of land in an area of low demand. However, it is important to keep the house well maintained in order to keep it in a good condition.
Does a new investment property depreciate like a new car?
Yes, however at a different rate and unlike cars, where the fixtures and fittings depreciate a lot in the first 5 years whereas the house continues to depreciate over 20 years. It is always a good idea to maintain the property on a regular basis.
I heard about positive gearing and negative gearing. What is gearing?
Gearing is the ratio of income required to service a debt. Gearing is the common term used in investing, as it allows you to borrow against assets for the purpose of investing.
How will I know what I can afford to borrow?
The first thing I do with property investors, is to put them in touch with a good mortgage broker to find out what their borrowing capacity is. The mortgage broker has a quick exercise to determine the borrowing capacity and it is dependent on many factors like income, equity and the amount of cash available. All lenders have different policies, which is why it is important to use a licensed independent mortgage broker opposed to just talking to one bank. Unless of course you have a good relationship with your bank and have good negotiation skills.
What if the interest rates go up?
Rate increases or decreases should always be taken into account when finding you the right package and also when interest rates do go up, so do rents and house prices. In other words, you still win.
When using equity in my primary place of residence, am I risking my family’s financial security?
Remember, You’re not selling off your home, you are simply using the equity that is built up over the years as leverage, to buy an investment property. You are enhancing your family’s future, if it is done wisely.
What are my options, when I have an urgent need of cash?
You may be able to cover this need by a loan. However, if you can’t, then you may have to sell your property. However, if you have bought in a growing area, which we recommend, there is a good chance that you will be able to sell your property at market value, provided you did the required maintenance. That is just one of the reasons why it is important to do regular maintenance on your investment property.
People say: don’t buy with your heart, but with your head…. what does that mean?
It simply means that it shouldn’t be an emotional decision, but rather a decision you make after doing your own research and calculations. Do not let your emotions get in the way of a good deal – it is all about the numbers stacking up.
Would it not perhaps be a better idea to buy an older house and renovate it to add value?
This option may, provide good returns, however you need to get an absolute bargain, be totally dedicated and good at DIY, be prepared with surplus cash for unforeseen eventualities. Remember that every day that property is not rented out or sold, the bank is taking their interest. Above all, there is no warranty. Nobody can see what is behind the bathroom wall when you buy an existing property and you may find nasty surprises along the renovating journey. An important fact: there are no minimal tax advantages for depreciation.
What exactly does the term: using other people’s money, mean?
One of the advantages of buying and investment property, is that it is not only your money that is growing, you are using the tax man’s money, the banks money and the tenants money are all contributing to your investment.
When and how soon can I purchase my next property to add to my portfolio?
You need to understand that everyone’s approach to property investing is different. It is recommended that you settle into your first investment, get comfortable with your strategy and evaluate your cash-flow before adding to your property investment portfolio. For some investors this is weeks after settlement, for others months or years. It all depends on our own individual circumstances.
Is it possible to buy property in my super?
You will need to have a Self Managed Super Fund (SMSF) set up, in order to buy an investment property in the fund. It is important to seek advice from a SMSF specialist, as this is an area in which you will need to have a professional to look after it. We can recommend highly skilled and independent SMSF specialists, if this is what you intend to do.
What is a SMSF?
A Self-Managed Super Fund in essence, is just a trust and like any trust structure, it is run by the trustees. An SMSF is another option in ways to save for retirement. It’s different from other super funds, because it is controlled by you and regulated by the Australian Taxation Office (ATO).
If you have any other question, please feel free to ask us.
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