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Tax Newsletter – February 2016
January 19, 2016 | 
Author Single Touch Payroll pilot and tax offset proposed
The Government is looking to cut red tape for employers by simplifying tax and superannuation reporting obligations through its initiative called Single Touch Payroll (STP). “Employers currently manually report Pay As You Go (PAYG) withholdings to the ATO,” the Assistant Treasurer Kelly O’Dwyer said. “Under the new STP this information will be automatically reported to the ATO through Standard Business Reporting (SBR) software.”
The ATO will be conducting a pilot in the first half of 2017 focusing on small businesses. From 1 July 2017, all businesses will be able to commence STP reporting, with the option to make voluntary payments. In addition, the ATO will transition employers with 20 or more employees to STP. From 1 July 2018, employers with 20 or more employees will be required to use STP enabled software for reporting to the ATO. The Government will make a decision on timing for rolling out STP reporting for employers with less than 20 employees after the pilot is completed.
To assist small businesses with a turnover of less than $2 million, the Government will offer a $100 non-refundable tax offset for SBR-enabled software. This offset is proposed to apply from 1 July 2017 and for software purchases or subscriptions made in the 2017–2018 financial year only.
TIP: Although there are benefits to streamline reporting, some commentators have highlighted cashflow concerns relating to making more frequent payments. Real time pay day reporting also gives the ATO an earlier intervention signal to contact struggling businesses. If you have any questions, please contact our office.
GST simplified accounting methods for small food retailers
Simplified GST accounting methods are available for small food retailers if they meet certain eligibility conditions. Many small food retailers buy and sell products that are taxable as well as products that are GST-free. Accurately identifying and recording GST-free sales separately from those that are taxable can be difficult, which makes accounting for GST complicated. However, there are five simplified GST accounting methods to choose from to help businesses meet their GST obligations. These include the Business norms method, Stock purchases method, Snapshot method, Sales percentage method, and the Purchases Snapshot method.
TIP: Business needs change and it may be prudent to take a look at whether there are advantages with adopting a SAM. Do you need help deciding which method would be best for your small food business? Please contact the office for assistance or further information.
Government’s Innovation Agenda contains tax incentives
The Government is looking to support innovation and its recently released Innovation Agenda proposes a suite of new tax and business incentive measures. A key proposal is to provide concessional tax treatment to encourage early stage investors to support innovative startups. Under the proposal, investors will receive a 20% non-refundable tax offset based on the amount of their investment (capped at $200,000 per investor, per year), as well as a 10-year capital gains tax exemption for investments held for three years. The Government has advised that the scheme is expected to commence during 2016 as soon as supporting legislative amendments are passed into law.
TIP: The incentive is proposed to be available for investments in companies that: undertake an eligible business (scope to be determined); that were incorporated during the last three income years; aren’t listed on any stock exchange; and have expenditure and income of less than $1 million and $200,000 in the previous income year, respectively.
ATO data matching real property transactions
The ATO has issued a notice announcing that it will be acquiring details of real property transactions for the period 20 September 1985 to 30 June 2017 from various state revenue offices and tenancy boards. In relation to rental properties, the ATO is seeking details of rent paid and contact details of landlords. In relation to property transfers, the ATO is seeking details of the transfers, including details of the transferors and transferees and any state land tax and/or stamp duty concessions sought.
The information will be matched to the ATO’s data holdings. The ATO said an objective of the data matching program is to ensure taxpayers are correctly meeting their taxation obligations. The ATO expects that around 31 million records for each year will be obtained. Based on current data holdings, the ATO said records relating to approximately 11.3 million individuals are expected to be matched.
TIP: The data matching program goes all the way back to the start of the capital gains tax (CGT) regime in September 1985. Some commentators suggest this could be the ATO looking for CGT revenue on previously undeclared capital gains or incorrectly claimed CGT concessions. Note also that the ATO intends to carry on its data matching program from 2017. It will no longer announce details of its program as law changes will make it mandatory by then for revenue authorities and other entities to report real property transactions to the ATO.
Tax treatment of earnout rights on business sale
A Bill has been introduced in Parliament that proposes to amend the tax law to change the capital gains tax treatment of the sale and purchase of businesses involving certain earnout rights (ie rights to future payments linked to the performance of an asset or assets after sale). As a result of these amendments, capital gains and losses arising in respect of look-through earnout rights will be disregarded. Instead, payments received or paid under the earnout arrangements will affect the capital proceeds and cost base of the underlying asset or assets to which the earnout arrangement relates.
Clarifying the CGT treatment of earnout rights has been a long time coming – it was first announced on 12 May 2010 as part of the 2010–2011 Budget. The amendments contained in the Bill are proposed to apply from 24 April 2015. However, note there will be protections for taxpayers who have undertaken other actions in reasonable anticipation of announcements made about the amendments in the 2010–2011 Budget.
TIP: The ATO has released details of its administrative treatment pending the formal enactment of the legislation. Please contact our office for further information.
Are your super saving goals on track?
The new calendar year is a good time to conduct a superannuation health check and set some new goals to help boost superannuation savings. Although there have been no seismic shifts in the superannuation landscape of late, it may be prudent to reacquaint yourself with the rules. The following are some considerations.
- Make extra contributions – the general concessional contributions cap is $30,000 for 2015–2016. For people aged 50 and over, there is a higher concessional contributions cap of $35,000 for 2015–2016.
- Check super savings – it is a good habit to check your super balance regularly. You may also want to protect your super from identity crime. For example, you may want to change passwords for accounts that can be viewed online.
- Look for small lost super accounts – the threshold below which small lost super accounts will be required to be transferred to the ATO has increased to $4,000 (from December 2015).
- Consolidate multiple super fund accounts – you may want to consider consolidating multiple super fund accounts. This may help avoid paying multiple fees, reduce paper work, and make it easier to keep track of your super.
- Salary sacrifice super – you may want to ask your employer about salary sacrificing super, or you may want to consider reviewing existing arrangements with your employer.
TIP: Professional advice should be obtained before implementing a new retirement saving strategy. Please contact our office to discuss your circumstances.
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Property Newsletter – January 2016
3 financial structures that can limit your borrowing capacity
Don’t let your financial structure hold you back from achieving your property goals in 2016 – here are 3 common finance mistakes that can limit an investor’s borrowing capacity.
When seeking to build a sizeable portfolio, many investors focus on the need to find properties that will grow in significant value.
However, investors also need to be aware of their financial structures because the wrong arrangements can severely constrain one’s borrowing capacity, and subsequently their ability to build a large property portfolio.
Here are 3 finance structures that investors should typically avoid.
Cross Collateralisation
Cross collateralisation is when a lender uses two or more of your properties as security to issue you a loan. This effectively keeps you tied to the one lender and can reduce your ability to borrow – in some instances, your lender may stop lending to you altogether. It’s best to secure each loan with one property only to maximise your lending capacity.
Ownership structures
Some accountants or financial planners may suggest you buy property via a trust. While a trust ownership may help with asset protection, this type of ownership structure can also limit an investor’s borrowing capacity. Some lenders will not allow the negative gearing claims for loan serviceability where the property is owned in a trust. Before establishing a trust to buy an investment property, it’s best to engage the advice of a mortgage broker who specialises in investor loans to assess your borrowing capacity.
Joint and several liability loans
When borrowing jointly with another person, you are each individually responsible for the entire debt but only entitled to half the rental income. This can adversely affect your borrowing capacity outside of the joint purchase, particularly if you’re buying with someone other than your partner.
Easing affordability provides bargain buys for investors
Housing affordability in two capital cities across Australia has improved making it a great time for investors to find some bargain buys and build their portfolios.
Both Perth and Brisbane currently represent great value for money for property investors.
Housing affordability has improved in both cities over the past year, according to credit rating agency Moodys.
In Perth, the average household spends about 21% of their income on mortgage repayments, down from 23.9% a year earlier.
This is the lowest level since 2004, and is a result of the low interest rate environment, migration easing from its recent peak and moderating prices over the past year.
Similarly, conditions have also eased in Brisbane where households spend about 23% of their income on mortgage repayments.
The improvement in the housing market in the Queensland capital can be attributed to many of the same reasons seen in Perth.
As both of these cities continue to transition from the resources boom to develop strong and diversified economies, investors are presented with a window of opportunity to acquire high-performing properties at reasonable prices.
Both cities represent great value for money, particularly when compared to Sydney and Melbourne, where households spend 39% and 32%, respectively, of their income on mortgage repayments.
Given the strong, long-term fundamentals of both Perth and Brisbane, it’s a great time for savvy investors to take advantage of the improved buying conditions.
Take action to achieve your development goals
If you’ve always wanted to become a property developer, make 2016 the year that you realise your dreams.
For those who have never done it before, the thought of developing your own property can be a daunting, yet highly exciting prospect.
However, property development doesn’t have to be scary or a highly onerous process. You just have to align yourself with the right people who hold the right skills to get the job done.
Engaging a company to manage the development of your property can be one of the easiest and most financially rewarding ways of developing a property.
Essentially, a lot of the leg work, that is researching and finding the best designers, builders and trades people has already been completed for you.
Furthermore, a development manager will also have a comprehensive understanding of the required processes and procedures, including when to gain council approvals, liaising with utilities providers and suppliers, insurance coverage and contract negotiations and terms, among other issues.
Whether it’s completing a retain and build or the construction of a boutique apartment complex, a development manager will work with you to obtain the most cost effective outcomes, by minimising delays and costs and maximising profits.
A good development manager will have a good track record of delivering a variety of projects. Ask to see or inspect some of their existing projects under construction and even speak with previous clients.
Property development doesn’t necessarily mean having to get your hands dirty or completing physical labour on the weekends.
Additionally, given the efficiencies that a good development manager can deliver, it’s easy to see the value in paying a professional to oversee a development for you.
So if you’ve always aspired to complete a property development, make 2016 the year to fulfil your goals.
Mark the start of 2016 with a cosmetic facelift
With the advent of a new year it can be a great opportunity for investors to complete some minor cosmetic upgrades to keep your properties looking modern and tenants happy.
Part and parcel of owning a property portfolio is the need to complete maintenance and upgrades to prevent properties from becoming run down and looking tired.
While it’s easy to see this as a cost, a better way of looking at this is the upgrades will help to maximise rents – some of these costs can also be claimed as a tax deduction. Furthermore, all savvy property investors should have a specific budget set a side each year for completing such cosmetic works.
In the spirit of a fresh year, New Year’s resolutions and so forth, it can be a great time to complete any necessary cosmetic upgrades your properties might need.
This could include laying new carpet, applying a fresh coat of paint and changing fixtures and fittings, such as taps, door handles and light switches.
Property investors should also consider completing cosmetic upgrades to the exterior as well.
Cleaning outside walls, painting or replacing rusting gutters and completing landscaping can significantly lift the appearance of a property.
Sometimes just focusing on 1 or 2 bigger tasks, such a landscaping or painting internal walls, can make a big difference for the tenant, particularly if the garden is overgrown or paint job is over a decade old.
If you’re using a good property manager, they’ll be able to provide you with a list of recommendations as to the best and most cost effective upgrades to complete.
Syndicates prove popular with investors
Momentum Wealth’s most recent residential development syndicate proved highly popular with investors after closing fully subscribed last month.
The Momentum Wealth Prime Property Development Fund (PPDF), which was launched in November last year, received commitments totalling $4 million and was closed in early December.
The PPDF comes on the back of our highly successful Carine Rise development syndicate, and will target the acquisition of a development site and subsequent construction of a boutique apartment complex.
The PPDF also follows the successful launch of the MPS Diversified Property Trust in July 2015 by our affiliated company, Mair Property Funds.
Following its launch, the MPS Diversified Trusts completed two successful raisings totalling over $6 million.
The funds were used to acquire high-quality commercial properties in Victoria and Western Australia, which will provide robust returns to investors.
Keep an eye out for further syndicates and trusts from Momentum Wealth and Mair Property Funds in the forthcoming year.
Finance Newsletter – December 2015/January 2016
RATE CRASH!
Do you have the best rate available?
If your interest rate is over 3.99% variable then you may be able to save thousands per year by changing loans and or banks. I have access to a Major bank that is currently offering customers a 3.99% variable rate .This NOT a honeymoon rate, discount is for the life of the loan. Conditions apply – owner occupied homes 80% LVR maximum. If you are interested in saving thousands per year call Mercia finance to see if we can show you how to benefit from a better rate. If you think fixing your rate is s good idea you can currently fix an owner occupied home loan for 3.95% for 3 years.
Investors will have read that most banks are increasing the rate on investment loans. This includes current investment loans. If you are a property investor check your rates and find out if these increases apply to you. If you are not sure Ask Mercia finance for an obligation free loan check. Some institutions are not increasing the rates for investors. So this is a good time to make sure you have the best loan for your circumstances.
If you have questions regarding any type of loan, call Dan Goodridge on 04144 233 40. Our service is free of charge to you the borrower and we have access to all the major lenders in WA. Mercia home loans is not closing during Christmas break, so call us anytime. After hours is OK.
Tax Newsletter – December 2015/January 2016
Tax negotiation limited to known debt amounts
Two company taxpayers have been unsuccessful before the Federal Court in seeking to set aside statutory demands issued by the ATO.
The matter essentially involved two individuals who carried on property development activities through several entities (including the taxpayers) and their recollections of an alleged “global deal” with the ATO at a meeting on 10 April 2014 to resolve various debt recovery disputes – including security arrangements – while objections and appeals were on foot. The taxpayers contended that, after the meeting, the ATO sought demands that were contrary to the “deal” (this included a demand for a security in the amount of $8 million in relation to a related trust) and made “threats” to issue statutory demands. The statutory demands against the two taxpayers were issued in September 2014.
The Federal Court dismissed the taxpayers’ applications to set aside the statutory demands. The Court said it did not doubt that the individual representing the taxpayers held a “genuine subjective belief” that he and the ATO had entered into a binding legal agreement at the April 2014 meeting that went beyond the terms of the Deeds of Agreement, which were subsequently executed. However, it considered the representative’s subjective belief was not supported by either objective documentary evidence or by the evidence of the ATO representatives who attended the meeting, which it preferred. Among other things, the Court accepted the ATO’s evidence that the negotiations involved only “established debts” reflected in a spreadsheet that was used at the meeting and did not include further tax liabilities, including those of the trust.
TIP: The above case demonstrates that to avoid confusion among negotiating parties, particularly in relation to future treatment of liabilities, agreements as to arrangements and the terms must be reached and agreed to by the parties in a subsequent written Deed of Agreement.
CGT roll-over for small business restructures on the way
The Government has released exposure draft legislation that proposes to provide roll-over relief for small businesses that change their legal structure. The proposed measures were announced in the 2015–2016 Federal Budget, and will apply to the transfers of assets occurring on or after 1 July 2016. Public consultation closes on 4 December 2015.
The proposed measures will provide an optional roll-over where a small business entity transfers a business asset to another small business entity without changing the ultimate economic ownership of the asset. The roll-over can also apply to affiliates or entities connected with the small business entity for assets they hold that are used by the small business entity.
The roll-over will apply to gains and losses arising from the transfer of capital assets, depreciating assets, trading stock or revenue assets between entities as part of a small business restructure. Discretionary trusts may be able to access the roll-over if the assets continue to be held for the benefit of the same family group.
TIP: The proposed new roll-over is in addition to roll-overs currently available where a sole trader or partner in a partnership transfers assets to, or creates assets in, a company in the course of a business restructure. Note also that, with any proposed “tax relief”, the devil is in the detail. Please contact our office for further information.
ATO starts issuing “certainty” letters
The ATO has commenced contacting more than half a million individual taxpayers to let them know that their recently submitted tax returns “are shipshape and will not be subject to further review”. The ATO said people who receive one of its “certainty” letters (also known as “A-OK” letters) can be assured that the ATO is happy with their tax returns, and has closed its books permanently on their returns, providing there is no evidence of fraud or deliberate avoidance.
The letter is being trialled with a sample of people who meet certain criteria. This includes having broadly simple tax affairs, a taxable income of under $180,000, and a good lodgement and compliance history. Depending on the success of the trial, the ATO said it aims to expand the program to more taxpayers for Tax Time 2016.
TIP: Despite the aim to provide “certainty”, it remains to be seen how the letters will operate in practice, particularly if the Commissioner can change his position on the issued letter if taxpayers amend their 2015 tax return or if the Commissioner relies on the concept of fraud or evasion to invalidate the certainty letter.
Government rejects SMSF borrowing ban recommendation
Direct borrowings by superannuation funds via limited recourse borrowing arrangements (LRBAs) are safe (at least for the next three years), following the Government’s decision to reject the Murray Financial System Inquiry recommendation to ban or restrict LRBAs. This is welcome news for trustees of self-managed superannuation funds (SMSFs) who have faced uncertainty about the future of such borrowing arrangements, which have become popular for investments in direct property and shares.
In releasing its response, the Government said that it did not agree with the recommendation. While the Government noted there are “anecdotal concerns” about LRBAs, it said the data did not justify policy intervention at this time. However, the Government said it will commission a report on leverage and risk in three years’ time. According to the Government, this timing will allow recent improvements in ATO data collection to wash through the system. The report will be used to inform any consideration of whether changes to the borrowing rules might be appropriate at a future date.
TIP: Despite the Government’s “green light” for LRBAs, a decision to establish an SMSF and invest in property using an LRBA is not one to be taken lightly. It would be prudent to obtain professional tailored advice on any possible LRBA issues that should be considered before committing to purchase a property via an SMSF.
Car expenses and FBT concessions on entertainment
A Bill is currently before Parliament that introduces two important changes. Key details are as follows.
Work-related car expenses
The Bill proposes to repeal the “12% of original value method” and the “one-third of actual expenses method”. Taxpayers will continue to be able to choose to apply the “cents per kilometre method” (for up to 5,000 business kilometres travelled), or the “logbook method”, depending on which method in their view best captures the actual running costs of their vehicle.
The Bill also proposes to provide a streamlined process for calculating the “cents per kilometre method” by providing a single rate of deduction. That is, the current three rates based on vehicle engine capacity will be replaced with a single rate of deduction. In the 2015–2016 income year, the rate will be set at 66 cents/km. The changes are proposed to apply from 1 July 2015.
TIP: So the Government will set 66 cents/km as the rate for using the “cents per kilometre method”, irrespective of a car’s engine size. Based on 2012–2013 figures, this would see those who drive smaller vehicles getting a slight increase in deductible expenses, and those who drive larger cars having a decrease in their deduction.
FBT concessions on salary packaged entertainment benefits
The Bill proposes amendments to the law governing fringe benefits to introduce a separate grossed-up cap of $5,000 for salary sacrificed meal entertainment and entertainment facility leasing expenses for certain employees of not-for-profit organisations, and all use of these salary sacrificed benefits will become reportable. The changes are proposed to apply from 1 April 2016.
TIP: Note that organisations affected include public and not-for-profit hospitals, public ambulance services, public benevolent institutions (except hospitals) and health promotion charities. It may be prudent to discuss with your adviser as to whether the above changes apply to your circumstances.
Property Newsletter – November 2015
SMSF loans caught in APRA crackdown
As Australia’s banking regulator continues to force finance lenders to tighten their lending standards, we take a look at how SMSF loans have been affected.
Lending via self-managed super funds (SMSF) began in 2007 after regulations where changed to allow SMSF’s to borrow money for investment purposes.
However, under the Australian Prudential Regulation Authority’s (APRA) recent crackdown on investor loans, borrowing via SMSFs to purchase an investment property has become much harder.
APRA’s changes to investor loans are designed to cool the residential property markets in Sydney and Melbourne, where house values have skyrocketed on the back of record-low interest rates and high demand from property investors.
As part of the changes, finance lenders are required to adhere to a limit of 10% growth in investor loans as well as hold more capital on their books.
The latter has led to many lenders completing billion-dollar capital raisings in recent months and, more recently, raising interest rates on some loan products, including SMSF loans.
Following APRA’s changes, some lenders have withdrawn SMSF products altogether.
Those lenders that have remained in the space, though, have been forced to tighten their loan requirements, meaning applicants must meet much stricter criteria.
The changes differ from company to company, however, most lenders have reduced their loan-to-value ratio (LVR) from 80% down to 70% for SMSF loans.
Lenders that have left their LVRs at 80%, though, have stopped offering interest-only loans, and applicants must make principle and interest repayments.
Some lenders are also requiring a minimum starting balance in the fund before a property can be purchased.
Additionally, some lenders are demanding SMSFs have some capital invested in different assets other than the property being acquired. For example, a $400,000 property purchase at a 70% LVR with a $280,000 loan amount would require the fund to have a minimum of $28,000 left over after all purchase costs.
Amid these changes, it’s important for investors considering purchasing property through an SMSF to seek advice from brokers and financial planners who specialise in this area.
5 tips for investing in a buyer’s market
Purchasing an investment property in a buyer’s market can be a spring board to significantly growing your wealth. Here are 5 tips to help investors make the most of favourable market conditions.
Buyer’s markets are an opportune time for investors to start or build their property portfolios.
Typically, in a buyer’s market there will be more properties for sale, fewer buyers and values may have softened.
While these factors provide favourable market conditions for property investors, to fully leverage these benefits here are 5 tips you must remember.
1) Secure finance pre-approval before starting your search for a property. Although there are generally fewer buyer’s in a buyer’s market, competition can remain tight in some segments of the property market or for some property types. By organising finance pre-approval, you’ll be in a much stronger position to beat any other buyers.
2) Don’t necessarily jump at the first property you find. As stock levels increase in a buyer’s market, investors will inevitably have more choice. To help you secure the best deal, determine the type of property you want to acquire (i.e. development site, established house etc) and compare similar properties before making an offer on a property.
3) Don’t rely on the whole market to rise. Never assume you’ll make a profit by simply acquiring a property in a buyer’s market and selling it during the next upswing. Make sure to complete sufficient research and purchase an investment property in an area that has strong growth fundamentals.
4) If you’re ready to buy, don’t delay. Many investors, too often, sit on their hands and wait for the property market to start rising again. However, by that time investors would have missed out on capital gains and may have to pay more for a property.
5) Weigh contracts in your favour. Property investors will have greater negotiation power in a buyer’s market, and should demand favourable contract terms and conditions, such as longer due diligence periods.
3 ways to become a developer
Do you want to become a property developer but aren’t sure where to start? Here are 3 ways to fulfil your goal, regardless of your level of knowledge, expertise or time constraints.
If you want to try your hand at property development, there are 3 options you can take, each distinctly different and requiring varying levels of involvement.
These 3 options allow anyone to become a successful property developer, irrespective of their experience, knowledge or time limitations.
- Do it yourself Developing property by yourself is by far the hardest and most time consuming of the 3 options. This requires you to complete a large amount of research and due diligence to ensure you’re finding the right site and completing the right type of development. You’ll also have to deal with the extensive red tape associated with councils and builders. Developing property by yourself is generally completed by seasoned investors who’ve a thorough understanding of the property and building industries.
- Appoint a development manager By appointing a good development manager you’ll be working alongside industry specialists who’ll be able to guide you through the entire process. A development manager will provide you with valuable advice as how to mitigate the risks and maximise profits. You maintain control over the project and your level of involvement can be as high or low as you prefer. You won’t have to dedicate as much time to the development because the development manager will take care of a lot of the research and red tape for you.
- Invest in a development syndicate Development syndicates provide exposure to much larger opportunities that may not have been an option as a sole investor. Syndicates also require less capital investment from each individual participant. They are ideal for more passive investors who are either time poor or don’t have extensive knowledge about property development. As an investor in a development syndicate, you can simply sit back and let industry specialists complete all the work on your behalf.
Dealing with late rental payments
In an ideal world, tenants would pay their rent on time. Unfortunately, this is not always the case, so how should you broach the issue of late payments with your tenants?
For the majority of property investors, rental income is relied upon to repay their loan on the property.
So when a tenant fails to pay their rent on time, the ramifications can be far greater than simply being out-of-pocket for a short period.
Conversations about money can be uncomfortable at the best of times, so if you’re managing your own property, late payments can put you in an awkward situation.
However, it’s critical to take the correct action immediately, otherwise, it sets a bad precedent and the tenant may believe that it’s okay to pay their rent late.
If you’ve engaged the services of a property manager, you won’t have to worry about the hassle of dealing with late payments, though, because the property manager will take care of this for you.
To help mitigate the risk of late rent, payment periods should be agreed upon with the tenant prior to signing a lease agreement – this information should also be included in the lease contract.
Tenants should also be encouraged to set up direct debit payments, so rent is automatically transferred to coincide with the due date.
It can be a good idea to have the transfer set up 2 or 3 days prior to the due date to take into consideration transfer delays between different banks.
If a tenant fails to pay their rent on time, it’s important not to jump to assumptions and conclude that they haven’t paid deliberately.
The tenant may have simply forgotten and needs reminding. Perhaps they’ve transferred the rent but there have been technical issues between banks.
Alternatively, the case could be much more serious and they may have been injured at work or lost their job. In these instances, it’s important to take a sensitive approach to the situation.
Of course, if a tenant continues to fail to pay their rent, there are a number of legal avenues to take.
Investor acquires 3 properties in 18 months
After experiencing some “ups and downs” in the property market, this investor decided to engage professional help. The result was 3 properties purchased in 18 months, and there’s more to come.
Andy Harrison started investing in property in 2003 and said he’d had a mixed experience going it alone, choosing “some good areas and some bad areas”.
“I soon realised that it’s not just about investing anywhere, you have to find the rights pockets within the right suburbs,” he said, also noting that individual property selection was key as well.
Based in Boddington, Western Australia, Andy decided to seek professional advice and engaged Momentum Wealth in 2013 after booking a free consultation with one of the company’s consultants.
At the time he wasn’t sure how many properties he wanted to acquire or how fast he wanted to grow his portfolio.
Andy said he just wanted to “go for it”, so he enlisted the help of Momentum Wealth’s buyer’s agents to find him his next investment property.
Subsequently, he bought a 3-bedroom, 1-bathroom villa in Dianella in May 2013.
“Using the buyer’s agency service takes the headache out of doing your own research, because its hours and hours of time that I just don’t have,” Andy, who is a small business owner, said.
Highly impressed with the outcome, Andy purchased two more investment properties in 2014, again using Momentum Wealth’s buyer’s agency service.
This time he bought a 4-bedroom, 1-bathroom house in Forrestfield and a 3-bedroom, 1-bathroom house in Thornlie.
“I wasn’t scared to max myself out and see how far I could go,” he said.
Since then, Andy has built an ancillary dwelling, commonly known as a granny flat, at the back of his Thornlie investment property.
The ancillary dwelling allows Andy to receive two rental incomes from one property (one from the main residence and one from the ancillary dwelling), which significantly boosts the rental yields.
While he utilised Momentum Wealth’s planning and development team to oversee the construction of the ancillary dwelling, Andy wasn’t scared of doing some of the heavy lifting himself, including renovation works to the main residence and landscaping on the property.
As the owner of a painting business, Andy was also looking for various ways to reduce his taxable income.
Property investment proved to be an effective solution, according to Andy.
He said since purchasing the properties he has cut his tax rate to close to one-fifth of what he was previously paying.
In addition to using the buyer’s agency and planning and development services, Andy also utilised Momentum Wealth’s finance brokers to adequately structure his loans.
“The finance team went over and above what they were supposed to do,” he said.
“If we had any issues with the bank or we were not quite sure, they sorted it out for us, which was brilliant.”
Looking ahead, Andy said he wanted to continue to purchase as many investment properties as he could.
“I’d like to have 10 properties within the next 6 years,” he said.
After purchasing 3 properties through Momentum Wealth, in addition to two other investment properties he already owns, he’s now at the halfway mark to achieving that goal.
Andy said he’d be referring to his Property Wealth Plan to help him along the way.
“That’s basically our bible,” he said, referring to the Property Wealth Plan, which was prepared by a Momentum Wealth property strategist.
“We quite often pull it out and have a good read. Even now when we’re looking forward to the next stage it helps us know exactly where we’re going.”
If Andy’s recent investment history is anything to go by, his next purchase shouldn’t be too far away.
What drives wealth in commercial property?
Those who aren’t attune to commercial property may assume that wealth is created in the same method as residential property. However, this isn’t necessarily the case.
When it comes to commercial and residential property, both asset classes share similar macro-economic drivers, including population, income and economic growth as well as supply and demand factors.
However, the means in which wealth is created through commercial and residential property generally varies.
For example, commercial property typically generates net rental income of about 7-9%, while residential property typically generates net rental income of 3-4%.
On the other hand, residential property has historically recorded higher growth rates compared to commercial property.
Wealth is created in different methods dependent upon if you own commercial or residential property.
Below are the main points associated with residential and commercial property that typically affect wealth creation.
| Residential | Commercial |
| · Generates lower income
· Owner pays most expenses · Lower vacancy rates · Shorter-term tenants · Easier to finance · Higher historical growth rates |
· Generates higher income
· Tenant pays most expenses · Higher vacancy rates · Longer-term tenants · Harder to finance · Lower historical growth rates |
Generally, residential property is the best option as a starting point in property and during an investor’s accumulation phase (i.e. when they’re building their property portfolio) so they can continually leverage their equity to make their next acquisition.
Conversely, commercial property is the best option, generally, when investors are nearing retirement and need a source of income (i.e. they retire and use the rental yields as their disposable income).
Ideally an investor will retire with a balance of residential and commercial property and a sold income stream to set them up for life.
Property trusts: listed vs unlisted
Property trusts are generally offered in two forms – listed or unlisted. But what’s the difference and the pros and cons of each?
Property trusts allow investors to gain access to larger, higher yielding investment opportunities at significantly lower price points than they could buying directly on their own.
Typically, trusts are either listed, in which they’re traded on a stock market (such as the Australian Securities Exchange), or unlisted, in which they’re privately held and there is no public market.
Investors in listed trusts can buy or sell at any time – the same as they would trade shares on the stock market.
While this may have its advantages, it can also mean that the unit price can be more volatile as it imitates the share market rather than the property market.
Conversely, investments in unlisted trusts are usually locked in for the duration of the trust. The duration of an unlisted trust depends on its type, for example commercial acquisition or development.
An unlisted trust may only hold a single or a small number of specific assets.
Asset can only be bought or sold in the parameters set out in the trust constitution, and some decisions require a vote by unit holders (i.e. the investors) with voting rights in proportion to each investor’s interest.
There are pros and cons to each form of trust and individual investors must determine what the best fit is for them.
| Listed property trusts | Unlisted property trusts |
| · Buy or sell at any time
· Unit price can be volatile and imitate share market |
· Capital locked in for duration of trust
· Unit prices less volatile and imitates the property market |