Finance News
Investing in real estate – what needs to be considered?
18 Oct 2017

With the strong growth in property prices over the last 10 years and the low interest rates on offer, many people are looking at investment in property to increase their net wealth. In the appropriate circumstances and by investment in the correct property, this strategy can have beneficial tax consequences and create strong wealth gains. Unfortunately however, we have seen many instances where people have entered into property purchases that have caused nothing but grief and losses. So what needs to be considered?

The first and foremost consideration is finding the correct property. Investors should take the same time and care in choosing an investment property as they would their own home. If in doubt, invest in a property and area that you would like to live. If you do use a property investment business to choose a property for you, make sure they are not just selecting a property to feather their nest with commissions. Ensure the property has a strong forecast of capital growth and rental yields. Look at properties for lease in the area to ensure the promised yields are realistic and visit the area yourself to ensure there is not going to be an oversupply of properties in the area in the future. Finally, check any contracts carefully for their estimates of ongoing costs such as body corporate, council rates and commissions.

The second consideration is who should buy the property. Should you own it, should you own it jointly with your spouse or should your super fund or family trust own it? This is a decision which must be decided based on your personal circumstances. There are restrictions on what sort of properties can be purchased by a super fund and if finance is required, the fund might also find borrowing difficult. Family trusts offer another alternative but the land tax commitments in Victoria are higher for trusts than individuals. Finally, it is important to realise the decision of who owns the property dictates who will receive the benefit of the rental losses, pay tax on the rental gains down the track and finally pay capital gains tax when the property is sold.

By getting these choices right, you hopefully will invest in a property that will provide good capital growth, good rental returns with minimal periods of being untenanted and tax benefits over the years. If you need advice on property investment and ensuring you maximise the tax benefits, contact us today.

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