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The basics of property investment

I have an aversion to shares because my dad lost a fortune when the market crashed in 1987 and now I am married with two kids, and our cash flow is pretty good with my wife back at work – I would like to invest in property. So, what are the basics?

I recommend buying a couple of books on investing in real estate or use the internet extensively to build up a pile of information.

First, work out how much you can borrow as an interest-only loan. Allow for a two per cent increase in interest rates or go for a fixed rate loan.

Then, see if you can buy a home or apartment where tenants want to live. Then, do a business plan including the likely rent and the costs real estate agent fees, accountants fees, lawyers fees, pest inspector fees and building inspection costs.

You will need to get a quantity surveyor who will show you all of the tax deductions once you buy the apartment. Your accountant will explain how tax deductions will help you pay off the loan. In simple terms if you ‘lost’ say $10,000 a year in owning this rented apartment, which means income is less than expenses, you can take this ‘loss’ off your taxable income to reduce it and this reduces your tax bill possibly giving you a bigger tax refund. If your accountant works this out to be $5200, or $100 a week, then you could get your paymaster to adjust your pay packet so you get this ‘refund’ in your pay packet each week. This will help you meet your interest repayments.

As you can see, property investment is more complicated than investing in shares but you can borrow more for property. Also property, generally, hasn’t got a history of diving 50 per cent as the stock market or a share can do. This is a summary in a nutshell but you do need to do some homework and get some great advisers in your corner who are tax deductible for a lot of their advice.

One last thing, you will pay capital gains tax on your net gain when you sell the property, but the same applies to shares. As you can see, there’s a lot to master to be a property investor but if you do it, it’s worth it.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Monday, August 16, 2010

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