Important mistakes to avoid when buying an investment property
Buying your first home is perhaps one of the biggest decision’s you will make. But for some, this won’t be the only property investment. Current pressured market conditions have had a significant influence over the past 5 years on housing prices, with reports suggesting a 73% increase in Australia’s biggest cities and suburbs including Sydney’s Hills District.
Purchasing property is a long term investment, usually a less volatile option. When comparing to other types of investments, one advantage which makes property an attractive choice is the ability for investors to offset property expenses. These offsets can be claimed on the end of year tax deductions. Buying your first property or expanding your investment portfolio is a significant financial decision. It is important you are aware of how to avoid common mistakes when financing your investment. Call Marco Scannone today on 0405 252 808.
Cross securitisation- what does this mean for you?
A common issue many investors should be aware of is cross securitisation. Cross securitisation is when a lender uses prior owned properties as collateral. Collateral from the existing loans is used to secure an additional credit to acquire new property. This is a common technique used by new property investors. However, having your loans cross securitised restricts the ownership you have of each property. This will restrict your ability to sell, as the bank will conduct a revaluation of all properties in your investment portfolio. If the value falls under the minimum requirement, further equity contribution (on top of the property sale amount) will be required.
Offset account- Avoid the risks and take advantage of the system
Another misconception when investing is the understanding and use of offset accounts. An offset account is a transaction account attached to a home loan. Any amount of money you have deposited in the offset account , reduces the amount of interest charged on the loan. Therefore, lower loan repayments can be achieved if you understand how to take advantage of this system. Whilst it may seem simple, it is important for investors to be aware of the risks of not using an offset account. If you decide to use the loan redraw facility instead of the offset account you will reduce the principle of the loan. If you then access this money for whatever reason the balance of the loan will increase to its previous amount, thus having an impact on the total interest you will be able to claim as a tax deduction.
Property can be a rewarding investment which can been seen with my own success story
My wife Federica and I have been investing in property since May 2008. Together we have acquired seven studio apartments in the suburbs of Darlinghurst, Potts Point, Woolloomooloo and Manly. In addition a three bedroom house in Riverstone, a three bedroom house + two Bedroom cottage in Bidwill and more recently we have purchased another property in QLD.
In 2008 we saw a significant gap in the market, with many cashed up international students looking for places to live who couldn’t find rental accommodation. Majority of students struggled to provide personal records i.e driver license or references from previous landlord’s. We decided to take advantage of this trend, and it worked!
Our first investment in 2008 was in Darlinghurst, this was a studio apartment in which we paid an upfront 20% deposit of a $190,000 investment. The first property was the hardest, as we were afraid and unsure as to whether we paid too much at the time. The property was then rented out very shortly after. From then on, my wife and I, decided to continue this process. By 2010 we had three properties together and looking back now we have nine fully owned properties in our investment portfolio. I am very proud of my wife and the investment journey I have been on. To read the full article click here.