Buying an investment property
Buying an investment property is a proven way to grow wealth for the long term, but there are certain pitfalls to avoid. Below we have distilled six of the major decisions and considerations you'll need to take into account as you begin your property portfolio.
Where to buy
Rental return and capital growth are dependent on location. We recommend that you review data on growth and returns before you decide. Your Yellow Brick Road adviser will help you find the property data you need to make a good investment location choice.
Types of property
Houses or units? Townhouse or acreage? The type of property you invest in will provide different returns. Units, for example, can have a lower purchase price but often show lower capital growth than houses. We recommend reviewing data about demand and supply in the area you're investing in, too.
The interest on the home loan for an investment is tax deductible, as are the costs of renting the property. However, you will find yourself paying capital gains when you sell the property.
Meanwhile, your home has no tax deductibility for the loan, but there is no capital gains tax payable on your 'family home'. In both scenarios we’ll strive to ensure that all your tax advantages are claimed, and none of your responsibilities are overlooked.
Many property owners use their family home to leverage more property purchases. Yet they also have to keep their family mortgage separated from their tax-deductible investment loan, for tax reporting purposes. Loans which allow split accounts or sub-accounts can simplify tax reporting.
If you are collecting rent, either through a property manager or directly, you will need a specialised insurance policy called landlord insurance. Landlord insurance doesn't just cover the building and fixtures but also protects you against damages caused by tenants and associated rental losses.
It is important as a property investor that you have the right loan. One of the benefits of being a landlord is that your investment property's interest is tax deductible. Some investors may want to consider an interest-only loan which may reduce costs in the early years following the purchase.