According to the ATO, only 9% of investors own more than three properties. Property is a very good investment but many people buy the wrong property, sell prematurely or hold on to a property hoping that things will change even if it likely won’t. If you want to be a successful property investor, consult with your tax agent and do it right.
First, remember that you can reduce the risk of investment by doing your research. It is important that investors are armed with education and knowledge. Shortcuts and lack of research often cause financial distress. Just like a business, property investors should practice due diligence by looking at the best structure and finance, their cash flows and expertise, as well as their competition and exit strategy.
Try to minimise the amount you will invest so you can maximise your returns. Even if you borrow 80% for a property, if that property’s value doubles after several years, your cash investment will still yield over 50% return per annum.
You also do not want to invest in an average asset as this can translate to a mix of good and bad returns. It is important to choose the right property type with high capital growth. Compound interest may just be the fastest way to wealth so investors might be better off maximizing growth that will be compounded every year.
Another important consideration is the right structure. As an investor, you should know the correct name to buy the property in before you sign the contract. Make sure that the structure protects your asset and improve returns if you don’t want to lose your investment through lawsuit or too much tax such as income tax, land tax and CGT. You also have to consider your estate plans.
It may not be a good idea to buy a property in a company because the individual is often a shareholder who could lose the shares in case of a lawsuit. A company does not receive 50% general CGT discount and may be inflexible when it comes to distributing to shareholders as well.
Wise investors use trusts to control and protect their assets but not all trusts are the same so it is important to talk to your accountant or tax agent about investment structures available to you.
Your accountant may also advise you about investments where there are many tax benefits. For instance, residential property comes with negative gearing benefits and deductible borrowing costs. There is also a scrapping schedule for renovations, which allows for tax deductions.
It is ideal to insure your assets so your income is protected and mortgage is insured. Regularly talk to your mortgage broker to maximise your line of credits or equity and benefit from available opportunities. Keep updated with your cash flows including rental and capital growth through your accountant or tax agent. Maximise your borrowings in times of upcycles so you can draw down during down cycles or when opportunities open up.
You may also want to invest in a property that requires minimal involvement on your part. There are investments that require little money even while maximising growth. Lastly, the most important is to make sure you can settle your mortgage because if values fall, you might be at risk of being unable to complete settlement.
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Whether you are a beginner, seasoned investor or business owner, our property and business tax accountants can give you guidance to maximise the financial areas of your life. We can also give you an integrated and tailored solution for your superannuation, taxation, property investment, asset protection, estate planning and more.
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