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.