4 tips to minimise your tax bill

Tax deductions for property investors are widely known but rarely understood.

Given the complexity of the matter, understanding the tax deductions you’re allow to claim can become overwhelming.

However, for property investors it pays to be familiar with the ins-and-outs because you can literally save thousands of dollars.

Here are 4 ways to minimise your tax bill.

1) Income splitting for couples

Structure your asset holdings so that the lowest amount of tax is payable, while continuing to optimise wealth creation. Property is expensive to transfer and restructure so you need to plan ahead before you purchase. As a general rule of thumb, negatively geared property should be in the name of the highest income earner while positively geared property should be in the name of the lowest income earner.

2) Maximising depreciation claims

Items deemed ‘plant and equipment’ on your investment property are depreciable items and are treated separate to the building. To minimise your tax, understand what is classified as plant and equipment as well as these item’s depreciation rates. In some specific circumstances, the building is also a depreciable asset. This is for residential buildings where construction commenced on or after July 18, 1985 or where construction of structural improvements started on or after February 27, 1992. Most investors use a quantity surveyor to provide them with a depreciation report.

3) Travel expenses

In some circumstances, travel expenses can be deductible, such as meals, transportation and accommodation. This may allow investors to claim such expenses when inspecting interstate investment properties. However, this is only the case if it’s the predominant reason for travel and if the travel coincides with private holidays, the expenses must be apportioned.

4) Investing via SMSF

The main advantage of investing via SMSF is the low tax rates – superannuation funds only pay 15% income tax and 10% tax on capital gains during the accumulation phase and 0% tax in pension phase for most investors. However, SMSFs aren’t for everyone as they can be costly to establish and maintain. Investors need to consider the pros and cons of investing via SMSF and if it’s an option that suits their strategy.

Want to learn more about property tax and investment strategies? Register for our upcoming webinar, Property Finance Strategies: Maximising your opportunities.

Please note: Momentum Wealth and its affiliated entities are not accountants or financial planners. While all information is provided in good faith, you should seek your own independent advice in relation to all tax matters.

Which is more important – location or property type?

It’s a common question among many investors – what’s the more important decision, choosing the location or the type of property when buying my next investment?

With literally hundreds of suburbs in each of Australia’s major capital cities, property investors have a huge range of choice when it comes to picking the location for their next acquisition.

Similarly, there is a large variety of property types to choose from, whether it be stand-alone dwellings, villas, townhouses, development sites or apartments, and then do you choose newly built or established?

So what’s more important, the location or the type of property?

The answer will largely be dependent upon your property investment goals, which, for most people, is to generate capital growth and a solid rental income.

For capital growth and strong rental demand, the location of the property is typically the most important aspect.

However, the location will generally have to work hand-in-hand with the property type.

A location may only make a good/bad investment if you hold the right/wrong property type.

For example, take:

• a stand-alone dwelling
• on a large lot
• in a suburb where land is scarce
• but apartments are rife

Provided the macro and micro-economic factors stack up, this stand-alone dwelling would generally make a good investment because of its large land component. On the other hand, an apartment in the same area would likely underperform because there is so much similar stock in the area.

It’s also important to consider your unique circumstances, such as financial capacity, risk tolerance and life circumstances.

If an investor is financially constrained and has a low tolerance to risk, a development site may not be the best option.

Want to find the best investment property that will suit you?

Advisors key to smart developments

Think property development is too hard? Well, think again. By surrounding yourself with a good support team of specialists, it’s much easier to build a highly profitable development project.

Developing a property doesn’t mean you have to go it alone. In fact, smart property developers will engage a team of specialists to provide advice to achieve the best outcome.

It’s much the same as engaging a financial planner, a stockbroker, an accountant or even a personal trainer for that matter.

You seek out these professionals because they’re experts in their fields and can recommend the best course of action to achieve your goals, whatever they may be.

Property development is no different. It’s important to engage professionals that can minimise the risk of a development while maximising returns.

But like any advisors, various property development advisors will provide varying degrees of service – some bad, some good, some exceptional.

So what questions should you ask yourself to ensure you’re engaging the right advisors? Here are a few key questions to know you’re receiving the best advice.

Is the company a builder or a development manager?

• If the company builds the development for you, there’s no competitive tendering process when awarding the work so you’re unlikely to be receiving the best price. Alternatively, a project manager will be able to tender the work to several building companies and award the company with the most competitive bid. Therefore you should engage a development manager.

Does the company have in-house specialists who understand building requirements from council-to-council?

• Specialists who understand local building requirements, such as planning specialists, are essential to maximising the development potential of your site. A company that has planning specialists in-house will be able to optimise the design of your development and may be able to find ways to include more dwellings on your site, which can lead to higher returns.

Does the company have in-house research specialists?

• If you own an existing development site, research specialists will be able to recommend the best products to suit that area. Alternatively, research specialists can find highly profitable sites conducive to development that will fit your budget.

Does the company have a good track record?

• Ask the company for testimonials from previous clients as well as their contact details so you can call them yourself and ask your own questions. Ask the company to take you to some of their completed developments as well as some under construction so you can see the quality of work and different types of projects they’ve managed

Smart property developers utilise advisors who can help to maximise their returns. There’s no need to go it alone and with a good development manager, just about anyone can build a highly profitable development.

Have you always wanted to complete your own development? Contact us today for a no-obligation consultation.

Strictly business: managing your investments

Are you considering befriending your tenants? It might be a decision you come to regret if you decide to mix business with pleasure.

It may seem like a great idea to introduce yourself to your tenants because you’d presume they’d have a greater respect for your belongings than a complete stranger.

However, forming relationships with tenants can backfire, in some instances, as the lines become blurred between friend and landlord.

For example, a tenant you’ve become good friends with may start stretching the terms of the rental agreement by:

• Failing to pay rent on time
• Not maintaining the property adequately
• Bringing pets into the house

If you’re a self-managing landlord and you’ve become good friends with the tenant, these types of scenarios can become tricky to handle, particularly if it gets to the stage where the tenant needs to be evicted.

As a landlord you may also become amenable to their requests or situation.

This is not to say that you can’t be courteous or sympathetic to your tenants, but the relationship should be maintained at arm’s length – being friendly is different from being friends.

The key to being a good property manager is that you need to treat your investment property like a business.

That’s a primary reason why you should utilise a professional property manager who will act as an intermediary and help remove the emotional decision making process when significant issues arise.

Want to learn more property management tips? Download our free eBook here.

Suburb snapshot: Lynwood

Amid ongoing gentrification, Lynwood provides investors with an affordable price point and is located next door to some more fancied postcodes.

Lynwood is located in the City of Canning just 12 kilometres south-east of the Perth CBD.

Bounded by Metcalfe Road in the north, High Road in the south west and Nicholson Road in the east, the suburb comprises about 3,100 residents with a median age of 34.

About 73% of the properties are either fully owned or being purchased with about 26% being rented.

With a median house price of $460,000, Lynwood’s main drawcard is its affordability and proximity to more fancied suburbs, such as Parkwood to the south east and Ferndale to the north.

While the suburb is experiencing gentrification, there is some state housing in the area but savvy investors can find pockets in which it’s not present.

Lynwood Village Shopping Centre is located within the suburb and Westfield Carousel Shopping Centre is located just 2.5km away.

The suburb is established residential, mostly zoned R20 in the south and R30 in the north, with approximately 90% houses and 8% duplex, villas and townhouses.

The housing stock was predominately developed throughout the 1960s and 1970s and only a small portion contains new developments.

About 18.3% of residents are employed as professionals which is around the WA average of 19.9%, while 16% are technicians and trade workers and 15.6% are clerical administrative workers.

Bannister Creek Primary School is located within the suburb and Lynwood Senior High School is directly adjacent in Parkwood. There are large areas of parks and reserves, including Bannister Creek Parks, Purley Park, Woodford Park and Edgeware Park.

Longer leases provide less stress

The commercial and residential markets can differ significantly, one main point of difference being the length of lease agreements, which for commercial property are weighed in the investor’s favour.

If you’re a residential property investor or ever rented a house or a unit, you’ll know that residential leases are relatively short, typically 12 months or as even as short as 6 months.

As an investor, this means you’ll have to go through the rigmarole of renegotiating the lease agreement quite frequently, provided you don’t utilise a professional property manager.

There’s also the prospect of more frequent vacancy periods, as residential tenants can be more nomadic.

Commercial property is typically different, though, as lease agreements are generally several years and, in some cases, can be as long as two decades or more.

It’s evident that commercial leases are generally much longer than residential.

This is highly beneficial for commercial investors as they don’t need to renegotiate the lease agreements as regularly or worry about finding new tenants as frequently.

However, there are downsides, though, as commercial properties will often experience much longer vacancy periods than residential properties.

It’s not uncommon for commercial properties to remain vacant for several months or even more than a year, while residential properties typically remain vacant for just several weeks or slightly longer.

So as a commercial investors you have to be comfortable with these long vacancy periods, however once you’ve secure a tenant, you’ll have peace of mind that you don’t need to renegotiate the lease for some years.

4 reasons why you should use a mortgage broker

When it comes to investing in property and building a large portfolio, a good mortgage broker will play a significant role in boosting your personal wealth.

The popularity of mortgage brokers has increased significantly in recent years, so why is it important to use these specialists rather than directly engaging a lender?

Here are 4 reasons.

1. A good broker can strategically arrange your finances and loans so you can access a higher volume of credit.
2. A good broker can structure your finances to suit your individual circumstances (i.e. your financial capacity, investment goals and life circumstances).
3. A good broker will have access to a wide variety of lenders. In Momentum Wealth’s case, more than 40.
4. A good broker will save you time and money as you won’t have to shop around to find the best deal.

There a number of benefits to using a mortgage broker, but it’s important to note that not all brokers provide the same level of service.

It’s critical to engage a broker that specialises in investment loans because they will have a deeper knowledge and more experience with such transactions, whether it be for the direct acquisition of a residential property, to finance a residential development, to invest via a SMSF or to purchase a commercial premise.

Overall, a good mortgage broker will provide the right advice and recommendations that will help you to build a larger property portfolio much faster.

Before you even start your search for an investment property, you should engage a broker who specialises in investor loans to gain a comprehensive understanding your financial capacity.

The importance of unbiased research

Most investors would agree that buying a high-quality investment property requires comprehensive research. So why do so many fail to achieve the returns they hoped for?

While it’s true that some investors conduct inadequate research before they buy, the real problem for investors is that most research is not designed with the investor’s goals and interests in mind. This can lead investors to make significant investment decisions based on information which is, at best, incomplete or, at worst, misleading.

During your research, it’s wise to consider who the research was originally developed for.

For example:

Property developers commission research to find sites that will be the most profitable and provide the best economies of scale, to allow them to develop and profit again and again.

• Property industry bodies collect data and report on city-wide and nation-wide statistics and trends. This information is interesting reading (hence why it’s so eagerly published by news media outlets) but it doesn’t give much insight into how local areas perform for investors – and more importantly, why they perform (or fail) the way they do.
• Property marketers conduct research on local economic and property market activity in order to find the best ‘good news stories’ to use to market and sell their client’s development project.

So how can investors be sure that their research will lead them to find and acquire a high-quality investment property? Here’s some tips from our research team on what makes property research work:

• Collect a large volume of data, from a wide variety of sources. This could include your typical real estate data, government-collected data (e.g. Census), industry reports and economic indicators.
• Consider the macro factors (i.e. city-wide factors) of economics and population trends, as well as the micro factors (i.e. street-level factors), such as local area gentrification and the emergence of new café strips. Public and private spending on infrastructure should also be analysed.
• Some of the most valuable data is not published broadly. That’s why our research team consistently record suburb-level supply statistics, track upcoming property developments and read local council minutes. These behind-the-scenes details can make or break a property’s performance.

What lies beneath – unearthing your site’s secrets

Asbestos, building rubble and even kitchen appliances – buried secrets that can be detrimental to your residential development and how to find them.

Many investors only focus on the structural aspects of a property, i.e. the house, when searching for their next development site.

However it’s always a good idea to find out what lies beneath the surface of a site, otherwise you might end up with a costly remediation bill.

Case study: Development site with (hidden) pool included

Take the below case study, for example.

A client approached Momentum Wealth to find him a development site with specific features, including:

• Located in an established area
• Close to parks and amenities
• Good capital growth drivers
• High rental demand

Our research team worked with our buyer’s agents to create a shortlist of possible sites that met the client’s criteria.

After completing some initial feasibility calculations we identified a development site and, with the client’s approval, placed an offer on the property, subject to due diligence.

As part of our due diligence we conducted satellite photo analysis which discovered a very serious issue with the property.

Below the surface of the site was an old pool that had been buried by the owners some years earlier.

Our investigations found satellite photos that showed the pool being buried and a soil test determined that the pool wasn’t filled in correctly, which could cause soil erosion and costly damage to any future development on the site.

Because we were able to identify the issue during due diligence, we were able to negotiate the remediation of the site at the seller’s expense.

This case study illustrates why it’s imperative to complete adequate due diligence, including soil tests, when buying your next development site, even if everything above ground seems fine.

If you fail to do so, you may buy a property with severe geotechnical issues that could cause significant damage to your development and could cost thousands of dollars to repair.

5 actionable tips to keep good tenants

Too many landlords take a ‘set-and-forget’ approach once they’ve leased their investment property, but being proactive can potentially save you thousands of dollars.

Once you’ve secured a tenant for your investment property, it’s easy to sit back and expect the rent to roll in.

While it can be as easy as this, it can also pay to be more active to address any issues that your tenants may have with the property to ensure they remain satisfied.

A happy tenant is likely to stay longer, which will save you a lot of money by avoiding more frequent vacancy periods and, subsequently, lost rental income.

Here are 5 actionable tips you can use to keep your good tenants from moving out.

1. Suggest including a regular gardening service as part of the rental agreement. This will give you peace of mind that the property is being maintained and the tenant will appreciate not having to complete the work themselves.
2. 3 months before the lease renewal is due, compare your property with other similar properties currently on the market. How does the rent and the quality of the properties compare? If other properties have better features (e.g. air-conditioning or a dishwasher) or the rent elsewhere is substantially cheaper, you could be vulnerable to losing your tenant. Once you have a clear idea on how your property stacks up, determine if a small rent adjustment or investment in new features or amenities is necessary.

1. Attend to repairs promptly to ease the inconvenience on the tenant. When you have a tradesperson on site, pay a little extra for them to check and test other fixtures at the property and give them permission to fix small items straight away. This will help prevent future maintenance issues, which means savings on call out fees for you and less time and frustration for the tenant.
2. Don’t leave personal belongings at the property, unless negotiated as part of the rental agreement.
3. Maintain space between you and the tenant. If you’re self-managing the property, keep the relationship professional and conduct routine inspections at agreed times. If you’re utilising a property manager, it’s best not to contact the tenant in any circumstances but communicate with them via the property manager.

Suburb boasts premium location and amenities

The suburb has the lot – quality schooling, extensive golf courses and parklands, a major regional shopping centre and is in close proximity to the beach.

Karrinyup is located in the City of Stirling and conveniently located just 12 kilometres from the Perth CBD and 2km from Trigg Beach.

There are a number of good schools in the area, including Deanmore Primary School, Newborough Primary School, Karrinyup Primary School and St Mary’s Anglican Girls School.

The suburb’s median age is 40 years and it comprises a population of about 8,500 residents.

More than 30% of the residents aged over 15 years identify as professionals, which is significantly higher than the WA average of 19.9%.

About 73% of properties are owned outright or with a mortgage, while about 23% of properties are rented – there is minimal state housing in the area.

Karrinyup Shopping Centre, which is located in the middle of the suburb, is a major drawcard for the area, as well as two golf courses and significant parklands, including Millington reserve, Karrinyup reserve and neighbouring Lake Gwelup Reserve.

The median house price sits at $820,000.

The area was largely developed in the 1950s and features a mix of residential and commercial buildings that have been built over the decades.

About 85% of dwelling in Karrinyup

are houses, 10% duplexes, townhouse or villas and 4% are flats, units or apartments.

Its neighbouring suburbs include Gwelup (east), Doubleview and Scarborough (south), Trigg and North Beach (west) and Carine (north).

Its main arterial roads include Mitchell Freeway, Karrinyup Road, Reid Highway and Marmion Avenue.

How do I invest in a syndicate?

As you might have guessed, investing in a syndicate can be somewhat of a different process to buying a property directly, so what exactly is the procedure?

While the process for investing in a residential development syndicate varies from company to company, one method is a capital first fund, where investors commit to a certain percentage or amount before the property is found.

These types of residential development syndicates typically follow the below steps.

1. Initial briefing of proposed syndicate. Potential investors are sent an Information Memorandum and invited to a syndicate briefing which outlines the goals of the syndicate, including targeted metrics, such as raising amounts, returns to investors, development size and composition etc.
2. Raising committed funds. Investors who are interested in participating in the syndicate then provide an initial deposit to the fund to secure their place. The deposit can vary but it can be around 5% of the amount they intend to invest.
3. Site search begins. With funding commitments meeting the specified raising amount, the search for a suitable development site begins. At Momentum Wealth, our in-house research team works with our syndicate team to constantly monitor the market and create weekly shortlists of potential sites. These sites are then subject to more analysis and initial feasibility studies are done to determine their profitability.
4. Offer placement. When a suitable site is found an offer is placed on the property and formal due diligence starts.
5. Information evening for investors. Provided the site meets the criteria under the due diligence process, an information evening is held for those investors who outlaid the initial deposit. Investors are provided with financial feasibilities (including forecast costs, profitability and returns), construction timelines and other key information pertaining to the site.
6. Final investment decision. Investors can elect to deposit the balance of their committed funds to proceed with the syndicate and the site is secured.

1. Once investors have made their final investment decision and the site is secured, project planning is finalised and presales and project construction begin.

Construction time will vary on the size of the development, but a boutique apartment complex (consisting of circa 30 apartments) should typically take about 18 months.

When’s the best time to diversify into commercial?

Commercial property should, at some stage, be considered as part of every investor’s asset mix, but when’s the right time to take the leap and add it to your portfolio?

Typically, commercial property plays a different role in your investment strategy compared to residential assets.

As a general rule of thumb, investing in commercial property is best done when you want higher cash flow, for example, at retirement when you need to supplement your income.

Conversely, investing in residential property is a strategy for investors starting out in property. It provides a lower rental return but generally a higher expected capital growth rate.

Why commercial property for cash flow?

Commercial property can deliver yields of between 7-9%, compared to residential yields of 3-4%, which is why commercial is best for when you need additional cash flow.

These higher yields will supplement your income at retirement and provide the cash flow you need for your everyday living expenses, as well as for travel, recreation, dining and any other costs.

Generally, investors should start considering commercial property investment when they have built a portfolio of at least 3 or 4 residential properties.

However, there are no hard-and-fast rules and adding commercial property to your asset mix will depend on your investment strategy and goals.