When you have an investment property, the interest on the home loan is tax deductible, as are the costs of renting the property, but you pay capital gains when you sell the property. Whereas, your primary place of residence has no tax deductibility in the loan, but there is no capital gains tax payable on your ‘family home’. An investment property is therefore part of the tax system and you should have expert advice, especially in terms of tax returns and keeping expense records and establishing depreciation schedules that meet ATO standards. Before buying an investment property, inquire with YBR Advice Services to ensure that all your tax advantages are claimed, and none of your responsibilities are overlooked.
It is important as a property investor that you have the right loans: you need a principal & interest (P&I) loan for your primary place of residence, because you want to boost the tax-free equity in the family home; but with your investment property, the interest is deductible in your home loan, so you should have what is known as an interest-only loan: you only pay the interest on the principal, not the principal itself. The YBR Empower home loans offer a very low interest rate (both fixed and variable) but they also allow interest-only loans. These loans only pay the interest, and they terminate at five years. At the end of the first five years, you can either rollover the loan into another five-year interest-only term, or – if you do nothing – it automatically reverts to a variable rate, 30-year P&I home loan.
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. This is how you do it: with a YBR Empower home loan, you can split your mortgage into separate accounts. So if your family home increases in value, and you decide to leverage the extra equity into an investment property, you can split the mortgage and have the P&I component of the home loan paying down the primary place of residence and the interest-only component supplying the deposit to the investment property. You can split an Empower home loan into nine different sub-accounts. It keeps your debt in one place, but allows accurate tax reporting.
Home loans for investment property don’t usually require transactional features, but they must have some flexibility that allows you to adapt to changing circumstances and opportunities. The Empower home loan range is ideal for investors because the loans have a simple $330 establishment fee, and no valuation fee or ongoing monthly fees or charges. This allows you to more accurately plan a budget for your investment property. The Empower home loans allow switching between fixed and variable rate, and because you can split the loan between interest-only and P&I, you can make extra repayments and redraw from it.
When you buy investment property you own an asset that produces income from tenants. For this you need a specialised insurance policy called landlord insurance, which doesn’t just cover the building and fixtures but also damages caused by tenants and rental losses because of the damage tenants cause. These policies have to protect your investment and they must be tailored to your circumstances: if in doubt, ask a Yellow Brick Road Insurance Broker. For an investment property you will typically be increasing your loan size. You – or the main breadwinner in your house – needs to service this debt from income and this represents a risk should an accident or illness effect the ability to earn income. To cover this risk, see a Yellow Brick Road Financial Planner or Insurance Broker and assess which life insurances you and your partner should have, to cover the debts in case of a death or serious illness. The typical ones are death cover, total & permanent disablement (TPD), trauma cover, and income protection insurance.